Is There Power Behind the Dead Hand? An Empirical Investigation of Dead Hand Poison Pills
University of New Orleans - College of Business Administration - Department of Economics and Finance
The Pennsylvania State University Dickinson School of Law
May 23, 2008
Penn State Legal Studies Research Paper No. 02-2008
Corporate Ownership & Control, Vol. 6, Fall 2008
Dead hand poison pills prevent potential hostile acquirers from circumventing a poison pill with a proxy contest whereby newly elected directors could redeem the pill. Dead hand provisions only permit continuing directors to redeem. Shareholder rights advocates and legal scholars have criticized dead hand poison pills as an assault on shareholder governance, but economic theory suggests potential shareholder benefits. We provide the first empirical study of dead hand poison pills. We find that adoption of dead hand poison pills leads to gains for shareholders and losses for bondholders. This supports Schwert's (2000) conjecture that poison pills provide shareholders with better premiums rather than entrench ineffective managers.
Number of Pages in PDF File: 27
Date posted: May 23, 2008
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