Do Poison Pills Increase Firm Risk?
Management scholars have argued that an active takeover market discourages risk-taking by managers and that takeover defenses serve to counter the risk-reducing pressures of an active takeover market. This study employs the Black and Scholes Option Pricing Model to determine whether or not adoption...
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2008
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sg-smu-ink.lkcsb_research-60452021-04-15T06:39:38Z Do Poison Pills Increase Firm Risk? TURK, Thomas GOH, Jeremy C. YBARRA, Candace Management scholars have argued that an active takeover market discourages risk-taking by managers and that takeover defenses serve to counter the risk-reducing pressures of an active takeover market. This study employs the Black and Scholes Option Pricing Model to determine whether or not adoption of poison pill securities increases investor perceptions of firm risk. The results provide evidence that the Option-Implied Standard Deviations of common stock returns increase significantly on the poison pill adoption date, on average. Furthermore, the implied standard deviations remained significantly above pre-adoption levels for several days after the poison pill adoption, suggesting that the perceived increase in firm risk is permanent. These results suggest the poison pills may serve a more constructive role in the governance of publicly traded firms than is generally assumed. 2008-03-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/5046 info:doi/10.22495/cocv5i3p5 https://ink.library.smu.edu.sg/context/lkcsb_research/article/6045/viewcontent/10_22495_cocv5i3p5.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Poison pill Acquisitions Takeover Defenses Firm Risk Options Management Incentives Corporate Finance |
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Poison pill Acquisitions Takeover Defenses Firm Risk Options Management Incentives Corporate Finance TURK, Thomas GOH, Jeremy C. YBARRA, Candace Do Poison Pills Increase Firm Risk? |
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Management scholars have argued that an active takeover market discourages risk-taking by managers and that takeover defenses serve to counter the risk-reducing pressures of an active takeover market. This study employs the Black and Scholes Option Pricing Model to determine whether or not adoption of poison pill securities increases investor perceptions of firm risk. The results provide evidence that the Option-Implied Standard Deviations of common stock returns increase significantly on the poison pill adoption date, on average. Furthermore, the implied standard deviations remained significantly above pre-adoption levels for several days after the poison pill adoption, suggesting that the perceived increase in firm risk is permanent. These results suggest the poison pills may serve a more constructive role in the governance of publicly traded firms than is generally assumed. |
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text |
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TURK, Thomas GOH, Jeremy C. YBARRA, Candace |
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TURK, Thomas GOH, Jeremy C. YBARRA, Candace |
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TURK, Thomas |
title |
Do Poison Pills Increase Firm Risk? |
title_short |
Do Poison Pills Increase Firm Risk? |
title_full |
Do Poison Pills Increase Firm Risk? |
title_fullStr |
Do Poison Pills Increase Firm Risk? |
title_full_unstemmed |
Do Poison Pills Increase Firm Risk? |
title_sort |
do poison pills increase firm risk? |
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Institutional Knowledge at Singapore Management University |
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2008 |
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https://ink.library.smu.edu.sg/lkcsb_research/5046 https://ink.library.smu.edu.sg/context/lkcsb_research/article/6045/viewcontent/10_22495_cocv5i3p5.pdf |
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