Investor Inattention and Stock Prices: Evidence from Acquisitions with a Choice of Payment Type

Erik Lie

I report evidence that shareholders holding a combined 15 percent of shares are inattentive or partially inattentive when confronted with the decision to receive cash or stock for their shares in acquisitions. The average cost of such inattention is two percent, and it increases to six percent for the tertile of transactions with the greatest difference between the cash and stock values. Most interestingly, I show that inattention affects stock prices, as attentive shareholders bid up the stock price in anticipation of a wealth transfer from inattentive shareholders.