POISON PILLS IN THE SHADOW OF THE LAW

Poison pills are among the most potent antitakeover defenses, but their economic effect is hard to pin down given endogeneity issues. This paper exploits the staggered adoption of state poison pill laws (PPLs) to show how “shadow pill” legitimacy changes how firms adopt visible pills. After PPL enactment, dangerous takeover targets increase visible pill adoption while low-risk firms shift away. We also find that PPLs raise firm value, especially for innovation-intensive firms with intangible assets.