The rationale for issuing poison pill securities remains unclear, despite the findings of a large body of prior research that these defenses adversely affect shareholder wealth. This paper investigates the hypothesis that the adoption of such defenses may reflect shareholders' desire to contract efficiently with their managers in an environment characterized by hostile takeovers and uncertainty about the managers' true performance. Unlike previous research, we focus on financial characteristics of firms as they relate to the motives for adopting such defenses. Our empirical research does not support the optimal contacting hypothesis. We interpret our results as supportive of the managerial entrenchment hypothesis.
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Length: 24 pages Date of creation: 01 Nov 1997 Date of revision: Publication status: published, International Journal of Finance, 1998, 10:3, 1120-1138. Handle: RePEc:boc:bocoec:393
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Find related papers by JEL classification: G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Andrei Shleifer & Lawrence H. Summers, 1988.
"Breach of Trust in Hostile Takeovers,"
NBER Chapters,
in: Corporate Takeovers: Causes and Consequences, pages 33-68
National Bureau of Economic Research, Inc.
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