NEW YORK UNIVERSITY

SCHOOL OF LAW

LAW & ECONOMICS RESEARCH PAPER SERIES

WORKING PAPER NO. 16-33

“The Insignificance of Clear-Day Poison Pills”

Emiliano M. Catan

September 2016

0.1

.2.3

.4.5

.6.7

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Year

Fraction of Firms with Active Poison Pills

http://dealbook.nytimes.com/2010/09/29/a-new-kind-of-defense-against-hostile-bids/

80

95

115

6554 49

42

157 11

2 2 7 5 1 0 0 1 0020

4060

8010

012

0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Number of Pill Adoptions

13 13

410

610 8

15

27

42

76

60

80

6963

45 42

24

15

020

4060

80

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Number of Pill Droppings

.2.4

.6.8

1

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12Bimesters around scheduled expiration date

Fraction of firms with active pills

The dependent variable is fiscal year-end Tobin’s Q using data from 1996 to 2014. All specifications include (3-digit SIC) industry-by-year fixed effects, and a vector of fixed effects for the number of years elapsed since the firm became publicly traded. Specifications 2, 3, and 4 include firm fixed effects. Standard errors adjusted for clustering at the firm level are reported in parentheses. ***, **, and * refer to statistical significance at the 1%, 5%, and 10% level, respectively.

-.5

0.5

1

-5 -4 -3 -2 -1 0 1 2 3 4 5Years around adoption

Tobin's Q: Cross-Sectional Dynamics Around Adoption Date

-.5

0.5

1

-5 -4 -3 -2 -1 0 1 2 3 4 5Years around adoption

Tobin's Q: Within-Firm Dynamics Around Adoption Date

-.5

0.5

1

-20 -15 -10 -5 0 5 10 15 20Quarters around adoption

Tobin's Q: Within-Firm Dynamics Around Adoption Date

-.01

-.00

50

.005

.01

.015

-20 -15 -10 -5 0 5 10 15 20Quarters around adoption

ROA

-.02

0.0

2.0

4.0

6

-20 -15 -10 -5 0 5 10 15 20Quarters around adoption

Sales

Within-Firm Dynamics Around Adoption Date

⊗⊗

⊗

The dependent variable is fiscal year-end Tobin’s Q using data from 1996 to 2014. The estimation sample consists of (a) for firms that adopted a pill during the sample period, the five years preceding the adoption of the pill, the year when the pill was adopted, and the 5 years following the adoption of the pill and (b) for firms that never had a pill during the sample period, all available firm-year observations. Firms that entered the sample with a clear-day pill in place are excluded from the estimation sample. All specifications include (3-digit SIC) industry-by-year fixed effects, and a vector of fixed effects for the number of years elapsed since the firm became publicly traded. Specification 2 includes firm fixed effects. Standard errors adjusted for clustering at the firm level are reported in parentheses. ***, **, and * refer to statistical significance at the 1%, 5%, and 10% level, respectively.

The dependent variable is fiscal year-end Tobin’s Q using data from 2002 to 2014. The estimation sample consists of firms that had a clear-day poison pill in December 2004 that had been adopted or renewed before December 31, 2001. All specifications include (3-digit SIC) industry-by-year fixed effects, a vector of fixed effects for the number of years elapsed since the firm became publicly traded, and firm fixed effects. Standard errors adjusted for clustering at the firm level are reported in parentheses. ***, **, and * refer to statistical significance at the 1%, 5%, and 10% level, respectively.

13 12

6

17 1821

50

76

50

23

12

17

3 2 1

020

4060

80

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Georgeson

Number of pill-related shareholder proposals

47

109

96

153

97

79

68

55

28

20

050

100

150

Num

ber

of p

ills

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Scheduled expiration year for pills in place on December 2004

-.00

4-.

002

0.0

02.0

04.0

06

-20 -15 -10 -5 0 5 10 15 20Quarters around adoption

R&D: Within-Firm Dynamics Around Adoption Date

-.5

0.5

11.

5

-5 0 5Years around Adoption Date

Firms with Staggered Board as of earliest date

-.5

0.5

11.

5

-5 0 5Years around Adoption Date

Firms with Annual Board as of earliest date

Tobin's Q: Within-Firm Dynamics Around Adoption Date