The Rise of Anti-activist Poison Pills

Ofer Eldar, Tanja Kirmse and Michael D. Wittry
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Ofer Eldar: Duke University
Tanja Kirmse: Drexel University
Michael D. Wittry: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists' interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt anti-activist pills, suggesting that pills are effective in deterring activists. The results are particularly strong for "NOL" pills that due to tax laws have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics.

JEL-codes: G30 G34 K22 (search for similar items in EconPapers)
Date: 2022-08
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https://dx.doi.org/10.2139/ssrn.4198367

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2022-07

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