Shareholder Proposals to Rescind Poison Pills: All Bark and No Bite?
46 Pages Posted: 23 Sep 1996
Date Written: March 1, 1996
We provide evidence on the incidence and effectiveness of shareholder monitoring by examining shareholder proposals to rescind poison pills. Our research indicates that shareholders present resolutions when they are more likely to increase the value of the firm. We find that pill rescission proposals are submitted more frequently when firm performance has been poor, when the initial market reaction to the adoption of the pill is negative, and when insider and block ownership of stock is low. In addition, pill rescission proposals receive more support when performance is poor and when the pill has characteristics that increase its potential for misuse by management. Unlike some previous studies, we find evidence that shareholder monitoring is effective. Poison pills are more likely to be restructured or rescinded when there is a shareholder resolution concerning the pill. In addition, once a pill rescission proposal is presented, the firm is more likely to restructure or rescind the poison pill if the initial market reaction to the pill adoption was negative and if the proposal was submitted by a pension fund. Overall, our results support the idea that shareholder proposals, despite the fact that they are non-binding, can be an effective mechanism in managerial oversight and an important component of the governance process of the firm.
JEL Classification: G23, G30, G34
Suggested Citation: Suggested Citation