THE INFLUENCE OF POISON PILLS ON EXECUTIVE COMPENSATION

Authors

DOI:

https://doi.org/10.14392/ASAA.2019120303

Keywords:

Anti-takeover Defenses, Poison Pills, Executive Compensation.

Abstract

We examine whether the poison pills influence on the executive compensation of Brazilian publicly-traded firms, considering that there is a particularity of this anti-takeover device in Brazilian firms when compared to US firms, since the managers can include in the company's bylaws an "eternity" clause that prevents poison pills change or removal, which may lead to a managerial entrenchment, maintaining managers privileges in the detriment of minority shareholders, including increases in the executive compensation levels. To test our hypotheses, we use a sample of 217 Brazilian publicly-traded firms listed on B3 with available data on Bloomberg® database and Brazilian Securities Exchange Commission website between 2010 and 2017. We use the total, fixed and variable compensations as proxies for executive compensation. However, to mitigate several outliers of these variables, we use the quantile regression as a robust alternative to the extreme sensitivity of the ordinary least squares estimator to modest amounts of outliers. Our main results show that poison pills have a positive influence on total, fixed and variable executive compensation. Furthermore, in an exploratory way, our results show that these "eternity" poison pills also have a positive influence on these proxies of executive compensation. These findings are consistent with the entrenchment hypothesis that since managers are protected in their positions, they may obtain private benefits at the expense of shareholders, such as higher levels of executive compensation. In this sense, our study contributes to the literature by showing that although reducing the risk of a hostile takeover, the poison pills are incurring in an additional agency cost for shareholders that not always leads to the reduction of conflicts between managers and shareholders since these anti-takeover defenses seem not being adopted in the Brazilian context to benefit the shareholders, but to protect managers in their positions.

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Author Biographies

Yuri Gomes Paiva Azevedo, Universidade de São Paulo (USP)

Doutorando em Controladoria e Contabilidade pela Universidade de São Paulo (FEA-RP/USP). Doutorado Sanduíche pela The University of Texas (UTEP). Mestre em Ciências Contábeis pela Universidade Federal do Rio Grande do Norte (UFRN). Bacharel em Ciências Contábeis pela Universidade Federal do Rio Grande do Norte (UFRN). Membro do Grupo de Pesquisa em Informações Contábeis - InCont (FEA-RP/USP) e do Grupo de Pesquisa em Finanças - GPFin (FEA-RP/USP). Peer reviewer certificado pela Publons Academy. Atua nas áreas de Contabilidade Financeira, Finanças Corporativas e Finanças Comportamentais.

Sílvio Hiroshi Nakao, Universidade de São Paulo (USP)

Possui Livre-Docência pela Universidade de São Paulo, Pós-Doutorado (Visiting Scholar) pela The University of Sydney, Doutorado em Contabilidade e Controladoria pela Universidade de São Paulo, Mestrado em Contabilidade e Controladoria pela Universidade de São Paulo, Graduação em Contabilidade pela Universidade de São Paulo e Graduação em Administração de Empresas pela Universidade de Ribeirão Preto. Atualmente é Professor Associado da Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto - FEA-RP - Universidade de São Paulo. É líder do Grupo de Pesquisa em Informações Contábeis, certificado pelo CPNq desde 2003. É pesquisador em tributação e informações contábeis.

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Published

2020-01-23

How to Cite

Azevedo, Y. G. P., & Nakao, S. H. (2020). THE INFLUENCE OF POISON PILLS ON EXECUTIVE COMPENSATION. Advances in Scientific and Applied Accounting, 1(3), 039–061. https://doi.org/10.14392/ASAA.2019120303

Issue

v. 12, n. 3 set-dez (2019)

Section

ARTICLES

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