Investors׳ reaction to the use of poison pills as a tax loss preservation tool

Stephanie A. Sikes, Tian, Xiaoli (Shaolee) and Ryan Wilson

Journal of Accounting and Economics, 2014, vol. 57, issue 2, 132-148

Abstract: The recent economic downturn resulted in firms generating significant tax losses, which they risked losing if they experienced an ownership change. In response, a number of loss firms adopted poison pill plans. We document a significant negative market reaction to the announcement of 62 poison pill adoptions related to net operating losses (NOLs), suggesting that in general investors do not consider management׳s claim that the pills are adopted to preserve a valuable tax asset to be credible. However, we find cross-sectional variation consistent with investors considering whether a pill is legitimately adopted to preserve the NOL or to entrench management.

Keywords: Taxes; Net operating losses; Poison pills (search for similar items in EconPapers)
JEL-codes: G34 H25 K34 M41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:57:y:2014:i:2:p:132-148

DOI: 10.1016/j.jacceco.2014.02.002

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