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The effect of Delaware law on firm value: Evidence from poison pill adoptions
Journal article   Open access   Peer reviewed

The effect of Delaware law on firm value: Evidence from poison pill adoptions

Terry L. Campbell IIa, Raj Varma and David A Becher
Corporate Board role duties and composition, v 6(2), pp 53-69
2010
DOI: https://doi.org/10.22495/cbv6i2art4
url
https://doi.org/10.22495/cbv6i2art4View
Published, Version of Record (VoR) Open

Abstract

As the leading location for firm incorporations and corporate law, Delaware occupies a unique place in corporate governance and control. In this paper, we provide fresh evidence on whether Delaware’s dominance arises from its takeover laws being in the best interest of shareholders versus managers by investigating the role of the state in which a firm is incorporated on the firm’s adoption of a poison pill. Our results indicate that announcements of adoptions of poison pills by Delaware firms are associated with returns not significantly different from those for non-Delaware firms. Moreover, Delaware firms that adopt poison pills are no more likely to receive a takeover bid, be successfully acquired, or receive better merger terms than non-Delaware firms. Overall, it appears that Delaware law, with regards to takeovers, promotes an environment consistent with a “race to the middle” philosophy, neutral to management and shareholders.

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