Is There Power Behind the Dead Hand? An Empirical Investigation of Dead Hand Poison Pills

Penn State Legal Studies Research Paper No. 02-2008

Corporate Ownership & Control, Vol. 6, Fall 2008

27 Pages Posted: 23 May 2008  

Katherine I Gleason

Government of the United States of America - Office of Financial Research

Mark Klock

Independent

Date Written: May 23, 2008

Abstract

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.

Suggested Citation

Gleason, Katherine I and Klock, Mark, Is There Power Behind the Dead Hand? An Empirical Investigation of Dead Hand Poison Pills (May 23, 2008). Penn State Legal Studies Research Paper No. 02-2008; Corporate Ownership & Control, Vol. 6, Fall 2008. Available at SSRN: https://ssrn.com/abstract=1136784

Katherine I Gleason

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Mark S. Klock (Contact Author)

Independent

No Address Available

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