When Poison Is Not the Best Medicine: Removing Nonessential Poison Pills
Ali C. Akyol
University of Melbourne - Department of Finance; Financial Research Network (FIRN)
affiliation not provided to SSRN
August 16, 2011
We examine poison pill removals between 1996 and 2009 and find that firms whose CEOs have a golden parachute and firms that are subject to monitoring by either active institutional investors or debt markets are more amenable to pill removals. We report that pill removals have increased in the post-Enron period. Our results suggest that pills are removed when the firm has substitutes to protect management and indicate that post-Enron shareholder activism is important in pill removals. Relative operating performance improves and takeover activity increases with an increase in takeover premiums following the removals, suggesting that shareholders benefit from the removals. Overall, the results emphasize the effect of shareholder activism in the post-Enron era, support that hypothesis that pills entrench management, and suggest that only nonessential pills are removed.
Keywords: : Poison pill removals, shareholder activism, takeover deterrence, bargaining power, managerial entrenchment, accounting scandals
JEL Classification: G30, G34working papers series
Date posted: December 13, 2009 ; Last revised: August 18, 2011
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