The Consequences to Directors for Deploying Poison Pills

Abstract

We examine the labor market consequences for directors who adopt poison pills. These directors experience a decrease in shareholder votes, an increase in termination rates across all their directorships, and a decrease in the likelihood of new board appointments. These adverse consequences accrue especially when pill adoption is costly for the firm and are not attributable to firm-specific events that can motivate pill adoptions. Firms have positive stock price reactions when pill-associated directors die or depart from their boards, compared to zero returns for other directors. We conclude that pill-adopting directors experience a decrease in the value of their services.

Keywords: poison pills, director reputation, director turnover, director labor market

JEL Classification: G34, K22, L51