Market Attention and the Wealth Effects of Stock Financed Acquisitions

Limited investor attention allows overvalued companies to announce stock financed acquisitions of listed targets without experiencing large announcement period losses. These acquirers break even as in the case of cash financed acquisitions. The overvaluation of these acquirers is corrected in the post-acquisition period. On the contrary, the overvalued companies that are subject to high market attention and use stocks as a payment method in their acquisitions of listed targets experience immediate correction by realizing significant losses. The widely cited evidence that stock financed acquisitions of listed targets are associated with large announcement period losses is driven by acquirers that are subject to high market scrutiny.