Shadow Pills and Long-Term Firm Value

Shadow Pills and Long-Term Firm Value

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

Series number :

Serial Number: 

Date posted :

March 01 2019

Last revised :

February 16 2019
SSRN Share


  • poison pill • 
  • shadow pill • 
  • antitakeover statutes • 
  • firm value • 
  • bonding hypothesis • 
  • innovation

This paper analyzes the value impact of the right to adopt a poison pill – or “shadow pill” – on long-term firm value, exploiting the quasi-natural experiment provided by the staggered adoption of poison pill laws that validated the use of the pill in 35 U.S. states over the period 1986 to 2009.

We document that the availability of a shadow pill results in an economically and statistically significant increase in firm value, especially for firms more engaged in innovation or with stronger stakeholder relationships. Our findings are robust to matching, higher dimensional fixed effects and portfolio analysis, and support the bonding hypothesis of takeover defenses.


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