The Consequences to Directors of Deploying Poison Pills
Charles A. Dice Center Working Paper No. 2019-23
54 Pages Posted: 27 Sep 2019
Date Written: August 30, 2019
We examine the labor market consequences for directors who adopt poison pills. Directors who become associated with pill adoption experience significant decreases in vote margins and increases in termination rates across all their directorships. They also experience a decrease in the likelihood of new board appointments. Firms have positive abnormal stock price reactions when pill-associated directors die or depart their boards, compared to zero abnormal returns for other directors. Further tests indicate that these adverse consequences accrue primarily to directors involved in the adoption of pills at seasoned firms and not at young firms. We conclude that directors who become associated with poison pill adoption suffer a decrease in the value of their services, and that the director labor market thus plays an important role in firms’ governance.
Keywords: poison pills, director reputation, director turnover, director labor market
JEL Classification: G34, K22, L51
Suggested Citation: Suggested Citation