Shadow Pills, Actual Pill Policy, and Firm Value
87 Pages Posted: 22 Nov 2017 Last revised: 4 Sep 2019
Date Written: August 6, 2019
We analyze the impact of the right to adopt a poison pill – a “shadow pill” – on actual pill policy and firm value by exploiting the quasi-natural experiment provided by the staggered adoption of poison pill laws that validated the pill as a takeover defense. We document that a strengthened shadow pill promotes the use of actual poison pills and increases firm value – especially for acquisition targets, and more innovative firms or firms with stronger stakeholder relationships. Our findings suggest shadow pills create value for some firms by increasing their bargaining power in takeovers and reducing their contracting costs with stakeholders.
Keywords: Poison pill, antitakeover statutes, shadow pill, firm value, bargaining power, bonding
JEL Classification: G32, G34, K22, O32
Suggested Citation: Suggested Citation