Poison or Placebo

Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures

Robert Comment

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

Journal of Financial Economics, 39 (September 1995) 3-43.

JFE All Star Paper

This paper provides large-sample evidence that poison pill rights issues, control share laws, and business combination laws have not systematically deterred takeovers and are unlikely to have caused the demise of the 1980s market for corporate control, even though 87% of all exchange-listed firms are now covered by one of these antitakeover measures. We show that poison pills and control share laws are reliably associated with higher takeover premiums for selling shareholders, both unconditionally and conditional on a successful takeover, and we provide updated event study evidence for the three-quarters of all poison pills not yet analyzed. Antitakeover measures increase the bargaining position of target firms, but they do not prevent many transactions.

Key words: Poison pill, Antitakeover law, Merger, Tender offer, Takeover premium

JEL Classifications: G34, G38

Cited 380 times in the SSCI and SCOPUS through 2020
© Copyright 1995, Elsevier
A full-text version of this paper, including tables and figures, is available in Acrobat's portable data format (.pdf).

Click here to download the reprint of the poison pill paper.


Fig. 1 Monthly time series plot of proportion of all exchange-listed firms that are covered by (1) control share laws, (2) business combination laws, (3) poison pill rights issues, (4) any of the above, and (5) the proportion of all exchange-listed firms that received initial merger proposals, merger agreements, or inter-firm tender offers each month during 1975-91 (left-hand scale).

Fig. 2 Number of cash-only and securities-only successful takeovers of exchange-listed firms in the period 1975-91, by year of announcement.

Fig. 3 Monthly time series plot of the spread between the junk (less than Baa) and Aaa corporate bond yields and the proportion of all exchange-listed firms that received initial merger proposals, merger agreements, or inter-firm tender offers each month, 1975-91 (left-hand scale).

Fig. 4 Number of initial poison pill adoptions by year for all exchange-listed firms in the period 1984-91. Also, market share of large law firms used in pill adoptions. The 'big-two' law firms are Wachtell Lipton and Skadden Arps. The 'next-seven' law firms are Fried Frank Harris, Sullivan Cromwell, Cravath Swaine, Paul Weiss, Wilkie Farr, Shearman Sterling, and Jones Day.

Fig. 5 Event study showing the cumulative proportion of firms receiving merger and acquisition (M&A) announcements within a year of the date of adoption of an initial poison pill, for 960 exchange-listed firms that adopted pills in the period 1983-90. The dotted line shows the cumulative fraction, over corresponding two-year periods, for exchange-listed firms that never adopted a poison pill. M&A announcements include merger proposals, merger agreements, and inter-firm tender offers, regardless of success.

The poison pill sample used in this paper is available in an Excel spreadsheet:

[if you use these data for purposes of publication, please cite the source of the data]

  1. an Excel spreadsheet here. This file is about 126K.

  2. an Excel spreadsheet compressed as a ZIP file here. This file is about 42K.

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Last Updated on 6/10/2021