Shadow Pills, Pill Policy, and Firm Value

Shadow Pills, 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 :

July 23 2020
SSRN Share


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

We analyze the impact of the right to adopt a poison pill – a “shadow pill” – on pill policy and firm value by exploiting the quasi-natural experiment provided by U.S. states’ staggered adoption of poison pill laws that validate the pill.

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


Real name:
Scott B. Guernsey
Real name:
Lubomir P. Litov
Real name:
Research Member
The University of Arizona; Université Toulouse-I-Capitole - Toulouse School of Economics; American College of Covernance Council