The Effect of Poison Pill Adoption on Compensation,Earnings Management and Value Relevance

摘要

Poison pill adoptions have been shown in most prior studies to be associated with management entrenchment,weaker corporate governance and loss of market value. This paper complements these results by showing that poison-pill-adopting firms systematically increase the managerial compensation and exhibit lower association between market returns and earnings or earnings-related variables. As supporting evidence,we find that affiliated block-holders who are likely to be better informed about the firm's future prospects,decrease their ownership in poison pill adopters. The free cash flow also declines in adopting firms compared to non-adopters. Further,we find that the decline in value relevance of earnings is mitigated in firms with high product competition. Overall,these results suggest that poison pill adoptions are associated with opportunistic reporting behavior by managers.