Poison Pills in the Shadow of the Law
74 Pages Posted: 13 Jan 2022 Last revised: 6 Feb 2024
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Poison Pills in the Shadow of the Law
Poison Pills in the Shadow of the Law
Date Written: February 2, 2024
Abstract
Poison pills are among the most powerful antitakeover defenses. Studying their economic impact is challenging because even firms without a “visible” pill have a “shadow” pill – i.e., the right to adopt a poison pill. We study the impact of “shadow pills” by exploiting U.S. states’ staggered adoption of poison pill laws (PPLs), which strengthened the “shadow pill.” We document that PPLs make visible pill policy more closely aligned with economic incentives, increasing pill adoption among low-valuation firms but decreasing it among high-valuation firms. PPLs positively impact firm value, especially for innovative firms with more intangible assets.
Keywords: Poison pill, antitakeover statutes, shadow pill, firm value
JEL Classification: G32, G34, K22, O32
Suggested Citation: Suggested Citation