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Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network

Gerald F. Davis
Administrative Science Quarterly
Vol. 36, No. 4 (Dec., 1991), pp. 583-613
DOI: 10.2307/2393275
Stable URL: http://www.jstor.org/stable/2393275
Page Count: 31
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Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network
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Abstract

This study compares the agency theory of the firm with interorganizational theory in examining the factors associated with the adoption of the poison pill-a takeover defense issued by a firm's board of directors that can dramatically increase the cost that a hostile buyer would have to pay to acquire the firm-by a panel of Fortune 500 firms between July 1984 and August 1989. The pill's rapid spread is traced to a combination of ownership structure and other firm-level factors and an interlock network diffusion process. The results support a social structural perspective on the market for corporate control in which the interlock network provides a social context favoring continued managerial dominance. The findings are also more consistent with models of cohesion rather than structural equivalence as the social structural mechanism responsible for diffusion.

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