The reputational impact of corporate governance: The case of poison pills

This paper examines the reputational consequences of corporate governance arrangements and, in so doing, attempts to establish stronger linkages between the literatures on governance and corporate reputation. We first examine whether governance arrangements matter for overall firm reputation and then begin to address the question of how and why they might matter by exploring a number of different contingencies. We investigate these issues by considering how poison pills impacted the overall reputation of large corporations from 1985- 1989, the time period when this practice gained prominence. Our results show that poison pills did indeed negatively affect the overall reputation of firms even after controlling for various measures of financial performance. In addition, we find that assessments of firm reputation differed somewhat depending on the characteristics of the firm (i.e., its relative visibility) and upon the reputation granting audience (executives vs. analysts). We also find evidence of temporal differences in this relationship and show that over time, the evaluations of different groups converged around a negative view of firms with poison pills. Our results suggest that corporate governance has implications for perceptions of the broader well being of the firm, beyond the more narrow definitions of financial performance that are typically the focus of empirical research in the governance literature.