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Corporate Governance, Shareholder Rights, and Shareholder Rights Plans: Poison, Placebo, or Prescription?

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  • Caton, Gary L.
  • Goh, Jeremy

Abstract

We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm's preexisting corporate governance structure. We find that only companies with the most democratic governance structures, defined as those with the fewest preexisting protective governance provisions, experience significantly positive abnormal stock returns and significantly positive abnormal revisions in five-year earnings growth rate forecasts. Moreover, regression results indicate that abnormal returns and forecast revisions are significantly related to governance structure and not to board composition or subsequent merger activity.

Suggested Citation

  • Caton, Gary L. & Goh, Jeremy, 2008. "Corporate Governance, Shareholder Rights, and Shareholder Rights Plans: Poison, Placebo, or Prescription?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(2), pages 381-400, June.
    • Handle: RePEc:cup:jfinqa:v:43:y:2008:i:02:p:381-400_00
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    Cited by:

    1. Chen, Sheng-Syan & Chen, Po-Jung & Lin, Wen-Chun, 2012. "The impact of strategic interaction on earnings expectations associated with corporate product strategies," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 66-77.
    2. Thomas Keil & Markku Maula & Evangelos Syrigos, 2017. "CEO Entrepreneurial Orientation, Entrenchment, and Firm Value Creation," Entrepreneurship Theory and Practice, , vol. 41(4), pages 475-504, July.
    3. Guernsey, Scott & Sepe, Simone M. & Serfling, Matthew, 2022. "Blood in the water: The value of antitakeover provisions during market shocks," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1070-1096.
    4. Gine, Mireia & Moussawi, Rabih & Sedunov, John, 2017. "Governance mechanisms and effective activism: Evidence from shareholder proposals on poison pills," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 185-202.
    5. Ng, Lilian & Wang, Qinghai & Zaiats, Nataliya, 2009. "Firm performance and mutual fund voting," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2207-2217, December.
    6. Andres Christian & Jacob Martin & Ulrich Lennart, 2019. "Takeover Protection and Firm Value," Review of Law & Economics, De Gruyter, vol. 15(1), pages 1-46, March.

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