Shadow Pills, Actual Pill Policy, and Firm Value

Shadow Pills, Actual Pill Policy, and Firm Value

Martijn Cremers, Scott B. Guernsey, Lubomir P. Litov, Simone Sepe

Series number :

Serial Number: 

Date posted :

March 01 2019

Last revised :

September 02 2019
SSRN Share


  • poison pill • 
  • antitakeover statutes • 
  • shadow pill • 
  • firm value • 
  • Bargaining power • 
  • Bonding

We analyze the impact of the right to adopt a poison pill – a “shadow pill” – on actual pill policy and firm value by exploiting the quasi-natural experiment provided by the staggered adoption of poison pill laws that validated the pill as a takeover defense.

We document that a strengthened shadow pill promotes the use of actual poison pills and increases firm value – especially for acquisition targets, and more innovative firms or firms with stronger stakeholder relationships. Our findings suggest shadow pills create value for some firms by increasing their bargaining power in takeovers and reducing their contracting costs with stakeholders.


Real name:
Scott B. Guernsey
Real name:
Lubomir P. Litov
Real name:
Research Member
The University of Arizona; IAST - Toulouse School of Economics