Poison Pills and Their Effect on Shareholder Return

The purpose of this study is to determine whether more recent poison pill data supports the Shareholder Maximization Theory or the Management Entrenchment Theory. In sum, this is an event study in which I will explore whether the stock price for a company goes abnormally up or down immediately following a poison pill announcement. I examine the cumulative abnormal returns of 28 companies within the following event windows: the event itself and the following day (0;+1), periods of three (- 1; +1), five (-2; +2) and seven (-3; +3) days, and longer periods of pre-adoption (-15; -4) and post-adoption (+4; +15) which represent “neutral” times. I will then compare these returns to the S&P 500 returns, The CRSP value weighted returns, and the CRSP equal weighted returns for the same time period. My null hypothesis is that there is no relation between poison pill announcements and shareholder return, and my alternative hypothesis is that there will be abnormal cumulative returns . If there are positive abnormal returns I will attribute it to the Shareholder Maximization Theory. If there are negative abnormal returns, I will attribute it to the Management Entrenchment Theory