New blockholder and investor limited attention: Evidence from private acquisitions

In acquisitions of private firms, new blockholders (NewBs) are expected to form when substantial stocks are paid. Investors react strongly to a NewB signal, given the perceived monitoring and certification benefits. However, they largely ignore value‐relevant but less salient signals, such as the true quality of the acquisition. Investors' limited attention allows financially weak firms to adopt the NewB strategy and take speculative deals. Our results support this inattention hypothesis: NewB acquirers are financially weaker and earn higher announcement‐period returns, but lower long‐run returns; moreover, acquirers' financial weakness negatively predicts long‐run performance.