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The Consequences to Directors of Deploying Poison Pills

Author

Listed:
  • Johnson, William C.

    (Suffolk University - Sawyer School of Management; Vienna University of Economics and Business)

  • Karpoff, Jonathan M.

    (University of Washington - Michael G. Foster School of Business)

  • Wittry, Michael D.

    (Ohio State University (OSU) - Department of Finance)

Abstract

We examine the labor market consequences for directors who adopt poison pills. Directors who become associated with pill adoption experience significant decreases in vote margins and increases in termination rates across all their directorships. They also experience a decrease in the likelihood of new board appointments. Firms have positive abnormal stock price reactions when pill-associated directors die or depart their boards, compared to zero abnormal returns for other directors. Further tests indicate that these adverse consequences accrue primarily to directors involved in the adoption of pills at seasoned firms and not at young firms. We conclude that directors who become associated with poison pill adoption suffer a decrease in the value of their services, and that the director labor market thus plays an important role in firms’ governance.

Suggested Citation

  • Johnson, William C. & Karpoff, Jonathan M. & Wittry, Michael D., 2019. "The Consequences to Directors of Deploying Poison Pills," Working Paper Series 2019-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-23
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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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