Abstract

This dissertation analyses the market reaction upon the announcement of corporations’ intent to adopt a poison pill, in Canada and in the United States. The two neighbouring countries have different takeover landscapes and dissimilar regulatory requirements faced by targets in light of the defense adoption. Two hypotheses are put forward in this study: the managerial entrenchment and the shareholders’ wealth maximization. Data on all poison pill announcements between January 1st, 1983 and December 31st, 2010 was collected, yielding 672 and 8,862 Canadian and U.S. announcements, respectively. Event study methodology was employed to identify the existence of market reaction around the announcement news. Empirical results support the shareholders’ wealth maximization hypothesis for both the U.S. and the Canadian sample characterized by significantly positive cumulative abnormal returns during the event window, with the Canadian sample demonstrating more positive abnormal returns. Additionally, the U.S. sample of issuing companies is examined further and a transition from a negative market reaction in the early 1980s to significantly positive abnormal returns in 1990s and 2000s is documented. A multiple regression analysis revealed that the proportion of institutional investors in target firms announcing the adoption of poison pills positively benefited the target by being partially responsible for more positive market reaction in light of the announcement news.