Investor Attention and Information Asymmetry in Stock-Financed Acquisitions

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School of Business | Bachelor's thesis
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Date
2019
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
20 + 3
Series
Abstract
Low investor attention enables overvalued companies to execute stock-financed acquisitions without experiencing significant reduction in existing stock price valuations. In this paper I find that retail investor attention measured by Google Search Volume index are highly correlated with acquisition announcement windows Cumulative Abnormal Returns. I addition, the effect of high investor attention depends on the market capitalization and deal value. High attention companies with high market capitalization that engage stock-financed acquisitions which deal value is small suffers significantly less wealth losses than companies with small market capitalization or big deal values. I study sample of 262 individual acquisition announcement events in US from 2004 to 2019 by multiple controlled cross-sectional regressions and robustness checks. The results can mostly be explained by attention-induced price pressure hypothesis by Barber and Odean (2008) that suggests that stocks, which gather an unusual high amount of investor attention, experience a short-term price pressure followed by long-term price reversal.
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Thesis advisor
Shin, Sean
Keywords
acquisitions, investor attention, information asymmetry, Google Trends
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