Title: The use of poison pills by US firms over the period 1997-2015: what has been their impact on shareholder value?

Authors: Duarte Pitta Ferraz; Ilídio Tomás Lopes; Simon Hitzelberger

Addresses: Nova School of Business and Economics, Universidade Nova de Lisboa, Campus de Campolide, 1099-032 Lisbon, Portugal ' Business Research Unit (BRU-IUL), Instituto Universitário de Lisboa (ISCTE-IUL), Av. das Forças Armadas, 1649-026, Lisbon, Portugal ' Nova School of Business and Economics, Universidade Nova de Lisboa, Campus de Campolide, 1099-032 Lisbon, Portugal

Abstract: Poison pills are controversial devices for which no common conclusion as to how the market reacts to their adoption exists. This research collates 4,479 poison pill adoption events by US companies over the period 1997-2015. Statistically significant insights and positive abnormal returns were found on the day the poison pill was adopted. It is for this reason that we argue in favour of the shareholder wealth-maximisation hypothesis, stating that poison pills protect shareholders by providing management a superior bargaining position. The shareholders react positively to poison pill adoption, particularly if a hostile takeover attempt is anticipated. Furthermore, shareholders seem to value the protective effect of the device, which both provides management a superior bargaining position and allows the maximal possible bid premium to be negotiated.

Keywords: corporate governance; poison pills; shareholder wealth; antitakeover statute; hostile takeover; value creation.

DOI: 10.1504/IJBEX.2019.099450

International Journal of Business Excellence, 2019 Vol.18 No.1, pp.98 - 119

Received: 22 Aug 2017
Accepted: 03 Mar 2018
Published online: 06 May 2019 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article