Poison pills and corporate governance

Abstract

The decade of the 1980s witnessed the emergence of shareholder control as an issue of considerable interest to investors. The controversy surrounding hostile takeovers and anti-takeover provisions focuses attention on managerial motivation for adopting defensive measures such as poison pills. Whether the adoption of a poison pill is in the best interests of shareholders depends upon which of two competing theories best conforms to reality. Management entrenchment theorists argue that poison pills reduce shareholder wealth, while short-term myopia advocates claim that adoption of poison pills will not decrease and may increase shareholder wealth. Numerous studies have examined the market's reaction to the adoption of poison pills and they tend to support the management entrenchment hypothesis. This study expands upon previous investigations in that we investigate managerial behaviour in the context of O.E. Williamson's work on transaction cost economics (Corporate finance and corporate governance, Journal ...