Canadian Firms and Poison Pill Adoption: The Effects on Financial Performance

There are two theories surrounding the adoption of anti-takeover amendments managerial myopia and management entrenchment. Managerial myopia is based on the premise that the performance of an organization will improve through the use of anti-takeover amendments by allowing managers to focus on long-term goals rather than short-term ones. Management entrenchment, on the other hand, argues that the performance of an organization, upon the adoption of anti-takeover amendments will decline as managers become less concerned with being replaced by takeovers and thus start to seek self-serving goals. The results of studies concerning the financial performance of firms upon adopting anti-takeover amendments are mixed with some supporting the managerial myopia theory, others supporting the management entrenchment theory, and still others supporting neither theory. The current study looks specifically at Canadian firms and the adoption of poison pills. Examined are the operating income to total assets, net income to total assets, capital expenditures to sales, and total debt to total assets ratios. The results lend strong support to the idea that poison pill adoption has no significant influence on the financial performance of Canadian organizations. While these results differ from many American studies, the fact that Canadian poison pills require shareholder approval and have a permitted bid provision help to explain the conclusions of the current study. [PUBLICATION ABSTRACT]