The “distraction” caused by the scattered attention of diversified institutional investors may weaken their governance effectiveness, and its impact on corporate mergers and acquisitions (M&A) decisions has not been fully explored. Taking M&A events of Chinese Ashare listed companies from 2007 to 2024 as a sample, this paper empirically examines the impact of institutional investors “distraction” on M&A premiums and its mechanism. The study finds that institutional investors “distraction” is significantly and positively correlated with M&A premiums. Mechanism tests indicate that institutional investors “distraction” drives up M&A premiums by reducing information support and weakening governance effectiveness. Further analysis reveals that the “distraction” behavior of focused institutional investors is more likely to trigger high premium M&As than transient institutional investors; high quality information disclosure, extensive M&A experience, and effective media supervision can significantly mitigate this effect. This study expands the research boundary of the economic consequences of institutional investors “distraction” and the motivations behind high premium M&As, and provides a basis for M&A decision making and regulatory optimization in practice.