The Consequences to Directors of Deploying Poison Pills

Fisher College of Business Working Paper No. 2019-03-023

Charles A. Dice Center Working Paper No. 2019-23

54 Pages Posted: 27 Sep 2019

See all articles by William C. Johnson

William C. Johnson

Suffolk University - Sawyer School of Management; Vienna University of Economics and Business

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

Michael D. Wittry

Ohio State University (OSU) - Department of Finance

Date Written: August 30, 2019

Abstract

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

Johnson, William C. and Karpoff, Jonathan M. and Wittry, Michael D., The Consequences to Directors of Deploying Poison Pills (August 30, 2019). Fisher College of Business Working Paper No. 2019-03-023, Charles A. Dice Center Working Paper No. 2019-23, Available at SSRN: https://ssrn.com/abstract=3460201 or http://dx.doi.org/10.2139/ssrn.3460201

William C. Johnson

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

Michael D. Wittry (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

854 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-3217 (Phone)

HOME PAGE: http://fisher.osu.edu/people/wittry.2

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