The Consequences to Directors for Deploying Poison Pills
Charles A. Dice Center Working Paper No. 2019-23
51 Pages Posted: 27 Sep 2019 Last revised: 19 Feb 2021
Date Written: February 15, 2021
We examine the labor market consequences for directors who adopt poison pills. Directors who become associated with pill adoption experience a decrease in vote margins, an increase in termination rates across all their directorships, and a decrease in the likelihood of new board appointments. These adverse consequences accrue primarily when pill adoption is costly for the firm. Firms have positive stock price reactions when pill-associated directors die or depart from their boards, compared to zero abnormal returns for other directors. We conclude that directors who become associated with poison pills suffer a decrease in the value of their services.
Keywords: poison pills, director reputation, director turnover, director labor market
JEL Classification: G34, K22, L51
Suggested Citation: Suggested Citation