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Distracted Shareholders and Corporate Actions

Elisabeth Kempf¹; Alberto Manconi²; Oliver G. Spalt³

¹ University of Chicago Booth School of Business · ² Tilburg University and Bocconi University · ³ Tilburg University

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. Received February 7, 2014; editorial decision July 6, 2016 by Editor David Hirshleifer.

DOI

10.1093/rfs/hhw082

Volume

30 (5)

Pages

1660-1695

Language

en

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Sources

crossref openalex