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The perils of popularity: Retail investor attention and misguided M&As

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  • Li, Weiping
  • Zhang, Hanfang
  • Xia, Jingjing

Abstract

Although the impact of retail investor attention on stock market dynamics has been widely studied, its influence on firm-level strategic decisions, such as mergers and acquisitions (M&As), remains largely unexplored. This study investigates the relationship between retail attention and M&A activity using a sample of Chinese A-share listed firms from 2011 to 2022. We find that heightened retail attention can lead to CEO overconfidence due to the self-attribution bias, which in turn results in increased M&A activity. However, these attention-driven acquisitions often prove to be value-destroying, consistent with evidence in prior research that overconfident CEOs tend to make imprudent investment decisions. Furthermore, the positive association between retail attention and M&A is more pronounced in firms facing higher uncertainty but is attenuated in firms subject to stronger external monitoring. These findings underscore the substantial, yet often overlooked, impact of retail investors on corporate strategic decision-making.

Suggested Citation

  • Li, Weiping & Zhang, Hanfang & Xia, Jingjing, 2025. "The perils of popularity: Retail investor attention and misguided M&As," Emerging Markets Review, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ememar:v:68:y:2025:i:c:s1566014125000846
    DOI: 10.1016/j.ememar.2025.101335
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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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