Distracted Shareholders and Corporate Actions
Review of Financial Studies, Forthcoming
53 Pages Posted: 19 Nov 2013 Last revised: 15 Jul 2016
Date Written: July 8, 2016
Investor attention matters for corporate actions. Our new identification approach constructs firm-level shareholder "distraction" measures, by exploiting exogenous shocks to unrelated parts of institutional shareholders' portfolios. Firms with "distracted" shareholders are more likely to announce diversifying, value-destroying, acquisitions. They are also more likely to grant opportunistically-timed CEO stock options, more likely to cut dividends, and less likely to fire their CEO for bad performance. Firms with distracted shareholders have abnormally low stock returns. Combined, these patterns are consistent with a model in which the unrelated shock shifts investor attention, leading to a temporary loosening of monitoring constraints.
Keywords: Behavioral Corporate Finance, Investor Attention, Institutional Investors
JEL Classification: G23, G32, G34
Suggested Citation: Suggested Citation