Hostname: page-component-77c89778f8-gq7q9 Total loading time: 0 Render date: 2024-07-16T11:17:12.722Z Has data issue: false hasContentIssue false
  • English
  • Français

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

Published online by Cambridge University Press:  06 April 2009

Gary L. Caton  and
Jeremy Goh
Get access Rights & Permissions [Opens in a new window]

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 2 , June 2008 , pp. 381 - 400
Copyright
Copyright © School of Business Administration, University of Washington 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amihud, Y., and Lev, B.. “Risk Reduction as a Managerial Motive for Conglomerate Mergers.” Bell Journal of Economics, 12 (1981), 650–657.CrossRefGoogle Scholar
Andrade, G.; Mitchell, M.; and Stafford, E.. “New Evidence and Perspectives on Mergers.” Journal of Economic Perspectives, 15 (2001), 103–120.CrossRefGoogle Scholar
Bebchuk, L. A. “The Case for Increasing Shareholder Power.” Harvard Law Review, 118 (2005), 833–917.Google Scholar
Bebchuk, L. A.; Coates, J. C. IV; and Subramanian, G.. “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence and Policy.” Stanford Law Review, 54 (2002), 887–951.CrossRefGoogle Scholar
Bebchuk, L. A.; Cohen, A.; and Ferrell, A.. “What Matters in Corporate Governance.” Working Paper, Harvard University (2004).CrossRefGoogle Scholar
Black, F. “Noise.” Journal of Finance, 41 (1986), 529–543.CrossRefGoogle Scholar
Brickley, J. A.; Coles, J. L.; and Terry, R. L.. “The Board of Directors and the Enactment of Poison Pills.” Journal of Financial Economics, 35 (1994), 371–390.CrossRefGoogle Scholar
Brous, P. A. “Common Stock Offerings and Earnings Expectations: A Test of the Release of Unfavorable Information.” Journal of Finance, 47 (1992), 1517–1536.CrossRefGoogle Scholar
Brous, P. A., and Kini, O.. “Interfirm Tender Offers and Target Firms' Future Performance: A Reexamination of Analysts' Earnings Forecasts.” Journal of Financial Economics, 34 (1993), 201–225.CrossRefGoogle Scholar
Chi, J. “Understanding the Endogeneity between Firm Value and Shareholder Rights.” Financial Management, 34 (2005), 65–76.CrossRefGoogle Scholar
Coates, J. C. IV. “The Contestability of Corporate Control: A Critique of the Scientific Evidence on Takeover Defenses.” Discussion Paper No. 265, Harvard University (1999).Google Scholar
Comment, R., and Schwert, G. W.. “Poison or Placebo? Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures.” Journal of Financial Economics, 39 (1995), 3–43.CrossRefGoogle Scholar
Danielson, M. G., and Karpoff, J. M.. “Do Pills Poison Operating Performance?” Journal of Corporate Finance, 12 (2006), 536–559.CrossRefGoogle Scholar
Datta, S., and Iskandar-Datta, M.. “Takeover Defenses and Wealth Effects on Securityholders: The Case of Poison Pill Adoptions.” Journal of Banking and Finance, 20 (1996), 1231–1250.CrossRefGoogle Scholar
DeAngelo, H., and DeAngelo, L.. “Management Buyouts of Publicly Traded Corporations.” Financial Analysts Journal, 43 (1987), 38–49.CrossRefGoogle Scholar
Denis, D. J., and Denis, D. K.. “Performance Changes Following Top Management Dismissals.” Journal of Finance, 50 (1995), 1029–1057.CrossRefGoogle Scholar
Gompers, P. A.; Ishii, J. L.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–155.CrossRefGoogle Scholar
Heron, R. A., and Lie, E.. “On the Use of Poison Pills and Defensive Payouts by Takeover Targets.” Journal of Business, 79 (2006), 1783–1807.CrossRefGoogle Scholar
Jarrell, G. A.; Brickley, J. A.; and Netter, J. M.. “The Market for Corporate Control: The Empirical Evidence Since 1980.” Journal of Economic Perspectives, 2 (1988), 49–68.CrossRefGoogle Scholar
Jensen, M. C. “Agency Costs and Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76 (1986), 323–329.Google Scholar
Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.CrossRefGoogle Scholar
Jensen, M. C., and Ruback, R. S.. “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics, 11 (1983), 5–50.CrossRefGoogle Scholar
Knoeber, C. R. “Golden Parachutes, Shark Repellents, and Hostile Tender Offers.” American Economic Review, 76 (1986), 155–167.Google Scholar
Lehn, K.; Patro, S.; and Zhao, M.. “Governance Indices and Valuation: Which Causes Which?” Working Paper, University of Pittsburgh (2006).Google Scholar
A., Levitt Jr “The Imperial CEO is No More.” The Wall Street Journal (03 17, 2005), A-16.Google Scholar
Malatesta, P. H., and Walkling, R. A.. “The Impact of Poison Pill Securities on Stockholder Wealth.” Working Paper, University of Washington (1985).Google Scholar
Malatesta, P. H., and Walkling, R. A.. “Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure.” Journal of Financial Economics, 20 (1988), 347–376.CrossRefGoogle Scholar
McConnell, J. J., and Muscarella, C. J.. “Corporate Capital Expenditure Decisions and the Market Value of the Firm.” Journal of Financial Economics, 14 (1985), 399–422.CrossRefGoogle Scholar
Morgenson, G. “Shares of Corporate Nice Guys Can Finish First.” The New York Times (04 27, 2003), 3.1.Google Scholar
O'Brien, P. C. “Analysts' Forecasts as Earnings Expectations.” Journal of Accounting and Economics, 10 (1988), 187–221.CrossRefGoogle Scholar
Plitch, P. “TIAA-CREF Targets ‘Dead-hand’ Poison Pills.” The Wall Street Journal (01 31, 2000), 1.Google Scholar
Rosenbaum, V.Corporate Takeover Defenses, Investor Responsibility and Research Center, Washington, DC (1990), (1993), (1995), (1998), (2000), (2002), and (2004).Google Scholar
Ryngaert, M. D. “The Effects of Poison Pill Securities on Shareholder Wealth.” Journal of Financial Economics, 20 (1988), 377–417.CrossRefGoogle Scholar
Schwert, G. W. “Markup Pricing in Mergers and Acquisitions.” Journal of Financial Economics, 41 (1996), 153–192.CrossRefGoogle Scholar
Schwert, G. W. “Hostility in Takeovers: In the Eyes of the Beholders?” Journal of Finance, 55 (2000), 2599–2640.CrossRefGoogle Scholar
Stein, J. C. “Takeover Threats and Managerial Myopia.” Journal of Political Economy, 96 (1988), 61–80.CrossRefGoogle Scholar
“Where Should Investors Turn? There's Little Consistency When it Comes to Ratings of Corporate Governance.” The Wall Street Journal (06 17, 2004), C-1.Google Scholar
Weisbach, M. “Outside Directors and CEO Turnover.” Journal of Financial Economics, 20 (1988), 431–461.CrossRefGoogle Scholar
Weston, J. F.; Mitchell, M. L.; and Mulherin, J. H.. Takeovers, Restructuring, and Corporate Governance, 4th ed.Upper Saddle River, NJ: Pearson Education Inc. (2004).Google Scholar