The Insignificance of Clear-Day Poison Pills

50 Pages Posted: 12 Sep 2016 Last revised: 20 Nov 2018

See all articles by Emiliano Catan

Emiliano Catan

New York University School of Law

Date Written: September 7, 2016


Exploiting a hand-collected database with almost 2200 firms during 1996-2014, I analyze the relationship between the presence of poison pills and firm value. Consistent with earlier results, I document a strong negative association between pills and firm value cross-sectionally and within firm. However, I document that (a) all the within-firm association is driven by pill adoptions (and none by the dropping of pills); (b) all the drop in value associated with adoptions precedes the pills’ adoption; and (c) firms adopted their pill after experiencing drops in their operating performance. These results indicate that the ostensive negative effect of pills on firm value is due to a spurious correlation, and that prior analyses were incorrect in concluding that pill adoptions are harmful and indicative of “bad governance”. Moreover, the results question the usefulness of the dramatic drop in the incidence of pills that took place during the last decade.

Keywords: Corporate Governance; Law and Finance; Corporate Law; Mergers and Acquisitions; Poison Pills; Takeovers; Anti-Takeover Devices

JEL Classification: G32, G34, K22

Suggested Citation

Catan, Emiliano, The Insignificance of Clear-Day Poison Pills (September 7, 2016). NYU Law and Economics Research Paper No. 16-33, Journal of Legal Studies, Forthcoming, Available at SSRN:

Emiliano Catan (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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