Effects of Board Composition and Stock Ownership on the Adoption of “Poison Pills”

Abstract

This research examined the relationships between board composition and stock ownership and the passage of “poison pill” takeover defense provisions by U.S. industrial manufacturing firms. Results indicate the existence of several antecedents to the passage of poison pills. The impact of board leadership on poison pill decisions depends on the proportion of independent directors on a board. Similarly, the impact of chief executive tenure on such decisions depends on the tenures of a firm's independent directors. Results also suggest that equity holdings significantly enter into decisions to adopt poison pills. Companies are more likely to pass such provisions the lower the equity holdings of inside directors and the higher the equity holdings of institutional investors.