What effect do poison pills have on shareholder value? an empirical research on the adoption of poison pills

Abstract

Poison pills are controversial devices. There is no common conclusion how the market reacts to their adoption. This empirical study finds statistically significant, positive abnormal returns centred on the day of the adoption of the pill. Consequently, this paper argues in favour of the shareholder wealth maximization hypothesis, stating that poison pills protect shareholders by giving the management a superior bargaining position. Further sub-sample analysis shows that poison pill adoption with an unwelcomed takeover threat drive the positive results in the sample. Routine poison pills do not show clear positive abnormal returns at the date of the pill adoption. This conclusion coincides with similar results found by Schepker, Oh and Patel (2016). Keywords: poison pills, shareholder wealth maximization hypothesis, market