This paper tests the effect of firms' mispricing and investment opportunities on the method of payment in mergers. Using a new proxy for investment opportunities and a sample of 1187 mergers completed between 1990 and 2005 among US publicly traded firms, I find that acquirers lead the decision on the method of payment, thus exploiting short-term market mispricing (in line with both the Rhodes-Kropf and Viswanathan, 2004 and Shleifer and Vishny, 2003 models). However, target managers believe in the quality of the merger and care about the long-term value of the merged entity's shares (as predicted by Rhodes-Kropf and Viswanathan, 2004 and contrary to Shleifer and Vishny, 2003). I also find that better investment opportunities lead to greater use of stock.

This paper examines the influence of CEO reputation on corporate proxy voting. Relying on prestigious business awards (through which the CEO is elevated to superstar status) as salient shocks to CEO reputation, we find that shareholders in aggregate, and mutual funds in particular, are more likely to vote with management (i.e., against shareholder proposals) when the CEO is a superstar. We use a battery of matching procedures to mitigate the concern that these results are driven by selection. We further show that shareholder proposals, especially contested ones and those with positive ISS recommendations, are significantly more likely to fail when the CEO is a superstar. Our results suggest that investors are sensitive to the external appraisal conveyed by the superstar status and prefer not to oppose management.