Publication Type
Journal Article
Version
publishedVersion
Publication Date
3-2008
Abstract
Management scholars have argued that an active takeover market discourages risk-taking by managers and that takeover defenses serve to counter the risk-reducing pressures of an active takeover market. This study employs the Black and Scholes Option Pricing Model to determine whether or not adoption of poison pill securities increases investor perceptions of firm risk. The results provide evidence that the Option-Implied Standard Deviations of common stock returns increase significantly on the poison pill adoption date, on average. Furthermore, the implied standard deviations remained significantly above pre-adoption levels for several days after the poison pill adoption, suggesting that the perceived increase in firm risk is permanent. These results suggest the poison pills may serve a more constructive role in the governance of publicly traded firms than is generally assumed.
Keywords
Poison pill, Acquisitions, Takeover Defenses, Firm Risk, Options, Management Incentives
Discipline
Corporate Finance
Research Areas
Finance
Publication
Corporate Ownership and Control
Volume
5
Issue
3
First Page
47
Last Page
53
ISSN
1727-9232
Identifier
10.22495/cocv5i3p5
Publisher
Virtus Interpress
Citation
TURK, Thomas; GOH, Jeremy C.; and YBARRA, Candace.
Do Poison Pills Increase Firm Risk?. (2008). Corporate Ownership and Control. 5, (3), 47-53.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5046
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.22495/cocv5i3p5