Poison Pills, Optimal Contracting and the Market for Corporate Control: Evidence from Fortune 500 Firms
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.
|Date of creation:||01 Nov 1997|
|Publication status:||published, International Journal of Finance, 1998, 10:3, 1120-1138.|
|Contact details of provider:|| Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA|
Web page: http://fmwww.bc.edu/EC/
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- Ryngaert, Michael, 1988. "The effect of poison pill securities on shareholder wealth," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 377-417, January.
- Randall Morck & Andrei Shleifer & Robert W. Vishny, 1988. "Characteristics of Targets of Hostile and Friendly Takeovers," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 101-136 National Bureau of Economic Research, Inc.
- 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.
- Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
- Bengt Holmstrom, 1980. "Equilibrium Long-Term Labor Contracts," Discussion Papers 414R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
- Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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