Tax Benefit Preservation Plans

36 Pages Posted: 5 Dec 2010 Last revised: 18 Mar 2021

Multiple version iconThere are 2 versions of this paper

Date Written: December 29, 2014


We study the rise of shareholder right plans aimed at protecting a firm’s net operating loss carryforwards (tax benefit preservation plans). Traditional rights plans are designed to prevent hostile takeovers and have been found to entrench management at the expense of outside shareholders. Tax benefit preservation plans, however, have the potential to benefit shareholders by protecting a potentially valuable corporate asset. Using a sample of firms with publicly available information, we find that entrenchment concerns tend to outweigh the protection of net operating loss carryforwards when firms adopt tax benefit preservation plans. Specifically, we find that abnormal returns are negative at the announcement of a new tax benefit preservation plan. Additionally, firms with such a plan in place experience negative abnormal returns around the Delaware Courts’ decisions validating their use.

Keywords: Delaware Courts, Net operating losses, Poison pill, Section 382, Shareholder rights plan

JEL Classification: G38, H25, K34

Suggested Citation

Boulton, Thomas J. and Nixon, Terry David, Tax Benefit Preservation Plans (December 29, 2014). Available at SSRN: or

Thomas J. Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Terry David Nixon

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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