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Abstract
The essays study the value effects and the determinants of a recent corporate governance innovation – the usage of low threshold poison pills to protect net operating loss carryforwards. The first chapter uses a Delaware court case as a quasi-natural experiment to study the value effects of these pills. While these pills are specifically designed to protect a firm’s valuable assets, I find more negative market reaction for firms that are more likely to use these pills. These effects are magnified when management is more likely to be entrenched. The second chapter studies the voting behavior of firms that adopt these pills. While shareholder votes are mandatory for many issues, boards can unilaterally adopt these pills without shareholder approval. However, about half of the firms that adopt these pills sought for a shareholder vote. Overall, the likelihood of a vote is significantly higher for firms with better governance in place. Conditional upon a vote, shareholder support is greater in firms that have better accounting performance and higher institutional ownership concentration. I do not find a significant difference in accounting performance, or in the probabilities of bankruptcy, acquisition, and CEO turnover between voting and non-voting firms during the five years following the adoption of these pills.