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Have there been any empirical studies of the effects of poison pills on share performance. . .

When I want information on corporate governance, I like to start with Lucian Babchuk, whose notable Research Interests are:
• Corporate Governance
• Law and Finance
• Law and Economics
Reading research is a challenge. Poison pills remain controversial.

What matters in corporate governance? Lucian Bebchuk, etal.
Abstract
We investigate which provisions, among a set of twenty-four governance provisions
followed by the Institutional Investors Research Center (IRRC), are correlated with firm value and stockholder returns. Based on this analysis, we put forward an entrenchment index based on six provisions – four “constitutional” provisions that prevent a majority of shareholders from having their way (staggered boards, limits to shareholder bylaw amendments, supermajority requirements for mergers, and supermajority requirements for charter amendments), and two “takeover readiness” provisions that boards put in place to be ready for a hostile takeover (poison pills and golden parachutes). We find that increases in the level of this index are monotonically associated with economically significant reductions in firm valuation, as measured by Tobin’s Q. We also find that firms with higher level of the entrenchment index were associated with large negative abnormal returns during the 1990-2003 period. Furthermore, we find that the provisions in our entrenchment index fully drive the correlation, identified by prior work, that the IRRC provisions in the aggregate have with reduced firm value and lower stock returns during the 1990s. We find no evidence that the other eighteen IRRC provisions are negatively correlated with either firm value or stock returns during the 1990-2003 period.

See Page 8: While both poison pills and golden parachutes are each present in most of the companies in our dataset, it should be noted that companies may adopt these measures not only before but also after the emergence of a hostile bid. Poison pills and golden parachutes are measures that the board has the power to approve at anytime, with no need for a shareholder vote of approval. Thus, even a company that does not have a poison pill in place can be regarded as having “a shadow pill” that would likely be rolled out in the event of a hostile bid (Coates, 2000).

See Page 11: When a firm adopts a poison pill or a golden parachute, however, its stock price might be influenced not only by the expected effect of the poison pill or the golden parachute but also by inferences that investors make as to management’s private information about the likelihood of a bid (Coates, 2000). Page 11

In the conclusions:
See Page 41: Pursuing fully this inquiry is an important task for future work. We present some evidence that is consistent with the possibility that, in the aggregate, the entrenching provisions bring about or help maintain lower firm valuation. But this evidence does not establish causality and much more work needs to be done.

http://www.law.harvard.edu/faculty/bebchuk/pdfs/2008_What-Ma...

The authors identify the items that matter in corporate governance as those aspects of corporate governance that are related to stock returns. More than half of the firms in their sample had staggered boards, golden parachutes, and poison pills; it is difficult to make infer¬ences about causality between these factors and stock performance.
many features identified as important to corporate gover¬nance may not have an impact on stock returns at all.

The authors argue it would be better for shareholders and advisors to identify and concen¬trate on the provisions that matter to stock returns rather than focusing on governance features that do not really mat¬ter for firm value.

Others reports:
Do pills poison operating performance?
Abstract
Contrary to arguments that poison pills degrade firm performance, we find that operating performance generally improves during the five-year period after pill adoption. Improvements in one performance measure - earnings before interest and taxes - are positively related to the initial stock price reaction when the pills were adopted. Thus, investors to some degree are able to discern when pill adoption precedes operating improvements. We are unable, however, to explain cross-sectional differences in performance improvements. Earnings changes are not, for example, related to such firm characteristics as board independence, board size, takeover bids, the presence of other takeover defenses, or R&D expenditures. And pill adopters do not outperform analysts’ expectations, as might be expected if managers adopt takeover defenses in light of private information that firm improvements are forthcoming.
http://hubcap.clemson.edu/~sauerr/seminar_papers/karpoff_01....

The Effect of Takeover Defenses on Long Term and Short Term Analysts’ Earnings forecasts: The Case of the Poison. Thomas A. Turk*, Jeremy Goh**, Candace E. Ybarra***
Abstract
This study examined the effect of poison pill adoption on long term and short earnings forecasts by security analysts. Our results provide no evidence of significant revisions in one-year or five-year earnings forecasts following the adoption of poison pills. We do find evidence, however, that firms adopt poison pills following a period of significant negative revisions in earnings forecasts. Our results suggest that poison pill adoptions may be a response to downward revisions in earnings forecasts.

Conclusion: Our results provide no evidence of significant revisions in one-year or five-year earnings forecasts following the adoption of poison pills.
http://virtusinterpress.com/additional_files/journ_coc/full-...

Research Spotlight Poison Pill M&A Premiums
New York - August 30, 2005
In March 1988, Georgeson released the first study comparing merger premiums and poison pill adoptions. The study found that targets of completed takeovers that had a poison pill in place received final offers 78.5% above where their stock was trading six months before the takeover began versus only a 56.7% gain for companies that did not have a poison pill.

The study was immediately challenged by the United Shareholders Association (a shareholder rights advocacy group founded by T. Boone Pickens that disbanded in 1993) who asked leading economists to evaluate the study. The group of experts, which included Michael Ryngaert and Gregg Jarrell, found that the study was flawed and misleading in part because it failed to address the decline in share value when companies use poison pills to defeat premium bids, it failed to address the effects poison pill adoptions have on stock prices, and that the six month time frame for which the premium was measured was too long.

Ryngaert and Jarrell had completed their own study for the SEC in 1986 that concluded poison pills "are not in the best interests of shareholders". Their study found on average that the adoption of a poison pill reduced a company's stock price by 1.7% over a two day period net of overall changes in stock market prices and that 45% of the companies that adopted a poison pill in their study were able to defeat takeover offers that resulted in the decline of the company's stock price an average of 17% within six months of the defeated takeover.

This criticism prompted Georgeson to produce a second study in December 1988 that addressed some of the critics' concerns, but the second study's methodology was also questioned.
More studies are reported.
https://www.sharkrepellent.net/pub/rs_20050830.html
[In assessing any research, methodology must be critiqued, just as it is in analyzing stocks]

The following research reviews CEO pay and the Poison Pill.
Poison Pills, Executive Stock Options, and Pay for Performance
John M. Bizjak, Portland State University
Christopher J. Marquette, University of Pittsburgh
Abstract
We find a significant difference in the structure of compensation between firms that adopt a poison pill and firms that do not. The pill firms have greater option compensation that increases after pill adoption. The pill firms have similar sensitivity of total pay to performance relative to a control sample prior to the adoption of the pill. After pill adoption, pill firms’ CEOs have pay that is more sensitive to firm performance relative to the control sample. We argue that our results on the sensitivity of compensation to performance are consistent with the ideas of DeAngelo and Rice [1983] and Knoeber [1986] who discuss how antitakeover devices can be used to bond managers to the firm and reduce myopic investment decisions. Our results suggest that poison pills enhance the type of compensation contracts shareholders can write and can lead to more efficient compensation structure. http://www.ccsu.edu/page.cfm?p=4236

Poison Pills as a Merger and Acquisition Defense
The intent of this article is to explain how so-called poison pills often are deployed by firms in an attempt to negotiate higher purchase prices from potential bidders or to thwart unwanted takeover attempts. A numerical example is provided to illustrate how they may work in practice. Article is extracted from the textbook Mergers, Acquisitions and Other Restructuring Activities by Donald M. DePamphilis. http://knol.google.com/k/poison-pills-as-a-merger-and-acquis...

An Antidote for the Poison Pill - Lucian Bebchuk
Discusses an article in WSJ by Bebchuck on the consequences of antitakeover defenses and the interaction of the poison pill with staggered boards. Shareholders could reduce the toxicity of corporate boards’ use of a “poison pill”—a device designed to block shareholders from considering a takeover bid—if they could replace board majorities more quickly.

Yet the empirical evidence indicates that when directors use their power to block offers, it often proves detrimental to shareholder interests. A research project I am carrying out with colleagues John Coates and Guhan Subramanian has found that boards that defeated premium offers failed on average, even in the long run, to produce returns for their shareholders that made remaining independent worthwhile. http://blogs.law.harvard.edu/corpgov/2011/02/24/an-antidote-...
[I assume that this research is yet to be published, as the article was written in 2011.]

Poison Pills Not Always A Drag On Shareholders’ Value
Peter Sigfrid, Alfred Berg, and Judy Day
Journal of International Banking Law - Vol. 16, No. 1, Pgs. 12-19
British researchers examined whether poison pills always constitute a breach of management's duty to the stockholders and found that takeover covenants often have redeeming features which make them a reasonable exercise of management's duties. Because the bondholder has an exit available in the event of a takeover, covenants lower risk and therefore the interest rate paid on the bonds. . . From the stockholder's point of view, the great advantage of takeover covenants is that they reduce the cost of borrowing money.

http://www.bowne.com/securitiesconnect/details.asp?storyID=1...
It is impossible to assess this report without a more detailed review and I cannot get the article.

Poison Pills in 2011 – by members of the The Conference Board, inc. a, business membership and research organization.
Having been buffeted by sustained attacks from activists and proxy voting
advisors in past years, the shareholder rights agreement is no longer
as prevalent as it once was. . .

Shareholder agreements(poison pills) are no longer prevalent but recent case law shows they can still be valuable anti-takover devices.
http://www.conference-board.org/retrievefile.cfm?filename=TC...

Poison Pills Haven't Lost Their Potency
According to an article on CFO.com research from FactSet Research Systems shows that eight of 11 poison pills implemented in the first quarter of 2011 were adopted in response to an activist investor acquisition or to preserve the NOL carryforwards. Shareholder rights plans are being used more now as short-term stopgaps against impending takeover threats opposed to being insurance policies against corporate raiders. http://www.cfo.com/article.cfm/14560978?f=search

Suddenly, Poison Pills Are Relevant Again
The unsolicited offer by Air Products (APD) for Airgas (ARG) has been one of the longest-running hostile bids in recent memory. Seeking to bring its offer for Airgas to a resolution, Air Products asked the Delaware Chancery Court to invalidate Airgas's poison pill. Although the case centered on the facts in that corporate saga, the Feb. 15 decision by Chancellor William B. Chandler III to affirm Airgas's shareholder rights plan has broader implications at a time when unsolicited bids are again becoming a common tool for strategic buyers.

Unsolicited offers have picked up since the subprime mortgage crisis. To be sure, today's unsolicited bids are not triggering the hostile takeover fights of days gone by, which unalterably changed Corporate America.
http://www.businessweek.com/investor/content/feb2011/pi20110...


So what’s to be said. ‘Poison pills’ use is trending downward as research indicates says The Conference Board but other reports say they still can still pack a punch. However, Businessweek says there is an uptick in the recent trend. Lucian Bebchuk, noted authority on Corporate Governance, sees the need for further research to link firm value to the poison pill. In the meantime, stick to ‘what provisions that matter to stock returns.’

However, Bebchuk said his latest study found that” boards that defeated premium offers failed on average, even in the long run, to produce returns for their shareholders that made remaining independent worthwhile.”

Other studies mention ‘the pill firms have greater option compensation that increases after pill adoption’ as does CEO pay that is more sensitive to firm performance relative to the control sample. Another finds that operating performance generally improves during the five-year period after pill adoption. Another finds earnings forecasts provide no evidence of significant revisions in one-year or five-year earnings forecasts following the adoption of poison pills.

I am out of time to further summarize, but there is research out there. Maybe something here helpful.

Best,
Ro
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