Poison pill securities. Stockholder wealth, profitability, and ownership structure

Abstract

This paper tests hypotheses about the wealth effects of poison pill securities and hypotheses about the characteristics of firms that adopt them. Our estimates indicate that poison pill defenses reduce stockholder wealth by a statistically significant amount. We also find that firms that adopt poison pill defenses are significantly less profitable than the average firm in their industries during the year prior to adoption. Moreover, the managers of these firms hold statistically significantly smaller fractions of their own firms' stock than the average fraction held by managers of other firms in the same industries. © 1988.