The Effect of Poison Pill Adoptions and Court Rulings on Firm Entrenchment

31 Pages Posted: 27 Sep 2015 Last revised: 16 Jul 2016

See all articles by Randall A. Heron

Randall A. Heron

Indiana University - Kelley School of Business

Erik Lie

University of Iowa - Henry B. Tippie College of Business

Date Written: September 25, 2015

Abstract

We challenge a common presumption that poison pills and two Delaware case rulings in 1995 validating such pills materially entrench firms. Based on unsolicited takeover attempts from 1985 to 2009, we find that poison pills enhance takeover premiums, but do not reduce completion rates. Furthermore, the 1995 Delaware rulings affected neither the use of poison pills among the targets, the effectiveness of the pills that were used, the completion rate of the takeover attempts, nor the takeover premiums.

Keywords: Poison Pill, Entrenchment, Takeover Defenses, Delaware

JEL Classification: G30, G34, G38

Suggested Citation

Heron, Randall A. and Lie, Erik, The Effect of Poison Pill Adoptions and Court Rulings on Firm Entrenchment (September 25, 2015). Journal of Corporate Finance, Forthcoming, Kelley School of Business Research Paper No. 15-71, Available at SSRN: https://ssrn.com/abstract=2665727

Randall A. Heron (Contact Author)

Indiana University - Kelley School of Business ( email )

Kelley School of Business
801 W. Michigan Street
Indianapolis, IN 46202
United States
317-274-4984 (Phone)

Erik Lie

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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