Even though poison pills can assume different forms - which may vary in accordance with the specific characteristics of each capital market - in general, they are projected to substantially increase the amount that a potential acquirer needs to spend to take over a target company (Dowen, Johnson, & Jensen, 1994). However, despite the fact that anti-takeover devices have been examined by the literature since their creation at the end of the 1980s, it has been verified that there is no consensus about the effects of their implementation (Gine, Moussawi, & Sedunov, 2017).

On the one hand, the managerial entrenchment hypothesis envisions that poison pills may promote the entrenchment of inefficient managers, thus leading to the destruction of shareholder wealth (Malatesta & Walkling, 1988; Arikawa & Mitsusada, 2011). From this point of view, these managers will feel protected from the market for corporate control and will feel secure to make decisions to obtain personal benefits to the detriment of shareholder interests (DeAngelo & Rice, 1983; Jensen & Ruback, 1983).

On the other hand, the hypothesis of the alignment of shareholder interests considers that poison pills can maximize the wealth of shareholders by being associated with greater negotiation premiums in the alienation of shareholder control (Heron & Lie, 2006; Heron & Lie, 2015). Thus, in a hostile takeover, this anti-takeover device gives greater negotiating power to the company’s board, making it necessary for a potential acquirer to make an offer which is of interest to the company’s shareholders (Comment & Schwert, 1995; Gine et al., 2017).

From this perspective, it has been verified that poison pills make it possible to ensure a more egalitarian treatment of all company shareholders in the acquisition of control, and with this, avoid isolated negotiations with varying prices and the loss of advantages that block negotiations may entail (Maestri, 2011).

Poison pills also can offer company managers benefits that may be aligned with shareholder interests, such as a focus on a long-term view. In providing greater protection against the market for corporate control, these devices may make managers feel less pressured to deliver short-term results, and thus prioritize long-term projects which maximize shareholder value (Knoeber, 1986).

Besides being useful to explain the effects of the adoption of poison pills, the hypotheses of managerial entrenchment and the alignment of shareholder interests are also used to examine the factors that determine the adoption of this anti-takeover device (Datta & Iskandar-Datta, 1996). However, we have also verified that there is no consensus among previous studies in relation to the alignment of shareholder interests view and managerial entrenchment view.

On the one hand, we have verified that aspects related to the best practices of corporate governance, such as the presence of a staggered board, an independent board, and board interlocking (Davis, 1991; Heron & Lie, 2006; Heron & Lie, 2015), are not only related to company performance (Harris & Madura, 2010; Heron & Lie, 2015), but also positively influence the adoption of poison pills, thus being in line with the alignment of shareholder interests perspective.

However, some evidence has also been found in consonance with the managerial entrenchment perspective, bearing in mind the positive influence of the duality of a CEO (Dah et al., 2017) and ownership concentration (Harris & Madura, 2010; Bhojraj et al., 2017) in the adoption of this anti-takeover device.

In this sense, considering the gap between empirical studies which investigate factors associated with the adoption of poison pills in emerging markets, as well as keeping in mind that these markets are different from developed markets in terms of aspects of corporate governance (e.g., their weaker protection of minority shareholders), it is relevant to examine the factors that lead Brazilian publicly-traded companies to adopt shareholder protection mechanisms such as poison pills.

In an environment in which there is low investor protection, it is not surprising that Brazilian publicly-traded companies wish to better protect their minority shareholders (Carvalho & Pennacchi, 2012). Thus, considering that poison pills offer benefits to shareholders given that they impede hostile takeovers by potential investors (Rhee & Fiss, 2014), it is possible that companies listed in differentiated segments of corporate governance have a greater tendency to adopt poison pills.

Bearing in mind the existence of asymmetries of information, Signaling Theory (Spence, 1973) proposes that one party (e.g., company) may voluntarily emit a signal to another party (e.g., investors) to transmit relevant information about their intentions. Thus, the differentiated mechanisms and practices of corporate governance can represent signals from the company, because they are signaling to the market that they represent good investment opportunities, and can also assure stakeholders of their quality and informational credibility (Dalmácio et al., 2013).

From this perspective, previous studies have shown that through the adoption of corporate governance mechanisms, companies seek to signal their concern with protecting their investors (La Porta, Lopez-de-Silanez, Shleifer, & Vishny, 2002; Klapper & Love, 2004), with the adoption of poison pills being one of these signals which has received considerable attention over the years (Straska & Waller, 2014).

Poison pills are considered to be mechanisms related to the protection of shareholder rights (Gine et al., 2017) and are even included in indexes that measure the quality of corporate governance such as the G-index proposed by Gompers, Ishii and Metrick (2003). In this sense, the quality of corporate governance in Brazil is considered to have been determined by various aspects, with one of them being the participation of differentiated segments of corporate governance (Almeida, Scalzer, & Costa, 2008; Bortolon et al., 2013; Dalmácio et al., 2013; Collares, 2020) which have a gradual focus on the levels of investor protection, and it is expected that companies listed in these segments have a greater propensity to voluntarily adopt devices that seek to protect their shareholders such as poison pills.

According to Martes (2014), the increase in the number of companies listed in special segments (Level 1, Level 2 and the New Market) have caused a greater dispersion in the Brazilian capital market (bearing in mind the minimum requirement of 25% free float), meaning the existence of companies with an elevated degree of shareholder dispersion which as a result make the possibility of hostile takeovers a reality in Brazil.

Considering that poison pills tend to be implemented in situations in which a potential investor can acquire a given percentage of the outstanding common shares of a target company in a hostile takeover until the total acquired sum makes it the controlling shareholder (Sikes, Wilson, & Tian, 2014), it is believed that the implementation of poison pills is even more important for companies listed in the New Market segment.

This occurs due to the fact that companies listed in this segment can just issue common shares. Thus, the 25% of free float composed only of shares with voting rights gives them a greater propensity to be the targets of hostile takeovers by potential acquirers, which can acquire a given sum of common shares which will make them the controlling shareholders of the company.

However, companies listed in Level 2 also may possess incentives for the voluntary adoption of poison pills bearing in mind that this segment also has discussions related to aspects of operations which may affect the control of the company. This view is based on the fact that in Level 2, preferred shareholders (originally without voting rights) may possess voting rights in the event of a merger or acquisition (Darosi, 2014), which are operations in which anti-takeover devices may provide a strategic advantage in the negotiation of greater premiums, thus maximizing shareholder wealth (Jiraporn, 2005).

In this sense, considering that better corporate governance offers more egalitarian treatment for all stakeholders (Claessens & Yurtoglu, 2013), it is expected that companies listed in special segments of corporate governance are adopting poison pills voluntarily as a complementary device to protect investors as proposed in Hypothesis H₁.

H₁: Companies listed in differentiated levels of corporate governance have a greater propensity to adopt poison pills.

The sample in this study consists of Brazilian publicly-traded companies whose shares are negotiated in the B3, with data available for the period of 2010-2017. This period was considered due to the mandatory adoption of the International Financial Reporting Standard in Brazil in 2010, which provided an increase in the quality of accounting information (Pelucio-Grecco, Geron, & Grecco, 2014), thus affecting the economic-financial data which is of interest to this investigation.

The economic-financial data was obtained from the Bloomberg® database, with information about poison pills and executive compensation being obtained from the CVM website. Thus, the poison pill data collection was based on the Alienation of Shareholder Control of company statutes, as well as the amounts of executive compensation based on the Total Compensation of the Board section of the reference forms.

The initial sample was composed of 412 companies. However, we excluded financial companies due to the particular characteristics of their financial and operational structures. In addition, we excluded companies for which we were missing data. After the exclusions, the final sample consisted of 1,377 observations of 217 companies as shown in Table 1.

Table 1
Sample selection procedure

Source: research data.

In order to avoid survival bias, we did not require companies to have data during the entire analyzed time window to be included in the sample. That being so, the analyses were conducted based on unbalanced data. Furthermore, as a way to mitigate the outlier effect in the sample, we winsorized the quantitative data at a level of 1%.

To investigate the factors associated with the probability of adopting poison pills, we estimated the model presented in Equation 1 by using logit and probit regressions.

In which Poison Pill is a binary variable which is 1 if the company i has adopted a poison pill during period t, and 0 if it has not.

In line with previous studies which have used the listing in special B3 segments as a proxy for the quality of corporate governance (Almeida et al., 2008; Bortolon et al., 2013; Dalmácio et al., 2013; Caixe & Krauter, 2014; Manoel, Moraes, Nagano, & Sobreiro, 2018; Collares, 2020), we used the dummies New Market, Level 2 and Level 1 as explanatory variables.

Our choice to use this proxy is based on the view that, based on the four pillars of corporate governance (a concern with the equal treatment of investors, legal compliance, a responsible presentation of accounts, and transparency in information and accounting demonstrations), the segmentation of various levels of corporate governance is designed to generate a more secure environment for shareholders, users and other related parties (Nardi & Nakao, 2008).

In a complementary manner, this proxy also makes it possible to capture various levels of investor protection, in line with the view that the extent to which mechanisms that ensure greater quality in corporate governance practices are adopted by companies through voluntary listings in premium segments, they will make actions that are designed to protect investors more effective (Collares, 2020).

In Table 2, we find the listing of variables included in the econometric model, its forms of measurement, as well as previous studies related to the adoption of poison pills (or anti-takeover devices) which complement their inclusion.

Table 2
Description of the variables

Source: prepared by the authors.

In the descriptive analysis, we find that approximately 25% of the sample companies have poison pills in their statutes, which corresponds to 55 publicly-traded companies, as demonstrated in Panel A of Table 3. This evidence is in line with Portulhak et al. (2017), and also demonstrates that over the years there has been an increase in the adoption of this anti-takeover device in Brazil, given that in 2006, just seven Brazilian publicly-traded companies had poison pills, as indicated by Vieira et al. (2009).

Table 3
Descriptive analysis

Source: research data. Note: *Variables in natural logarithms.

The percentage of companies listed in the New Market (47.7%) is in line with Bortolon et al. (2013), and also signals that approximately half of the non-financial publicly-traded companies in the B3 have sought in a voluntary manner to be listed in the highest level of corporate governance. This aspect can be considered a signal that public companies have voluntarily sought to adopt mechanisms that seek to align the interests of managers and shareholders given that to be listed in the New Market, these companies need to meet a series of requirements designed to protect shareholders such as tag along provisions.

In terms of ownership concentration, we have verified that the main shareholder holds, on average, 47% of a company’s shares, which is in line with the view that publicly-traded Latin American companies are characterized by high ownership concentration in which sometimes the controlling shareholder assumes the role of managing the company (Saona & Muro, 2018).

In a complementary manner, we observe that the average size of the board is seven members, with this being a possible influence for the predominance of companies listed in the New Market segment, which includes in its rules the requirement of at least five members on the administrative board (Machado & Famá, 2011).

On average, we have verified that these firms present low performance (0.008) and high leverage (0.697), which may be related to the 2014-2017 crisis as demonstrated by Barbosa (2017). However, despite this period of economic crisis, we can observe that the companies in the sample present growth opportunities, with an average market-to-book ratio of 15.4769.

Through Panel B of Table 3, we can verify that most of the companies who adopt poison pills (91%) are listed in the New Market segment, which is in line with the view that companies listed in this segment have a greater propensity for being targets of hostile takeover attempts due to their maintenance of a 25% free float composed of common shares. This result corroborates Portulhak et al. (2017), who describe poison pills as having a greater propensity to be adopted by companies listed in the New Market.

In terms of the ownership structure, Panel C in Table 3 shows that most of the companies that adopt poison pills have a dispersed or dominant ownership structure which makes companies more susceptible to hostile takeover attempts. The classification of dispersed, dominant or concentrated ownership is based on Anjos, Tavares, Monte and Lustosa (2015), who classify these three categories in the following form: (i) dispersed - equal or inferior to 20%; (ii) dominant - above 20% and below 50%; and (iii) concentrated - above 50%.

Finally, we verified that companies which have concentrated capital have adopted poison pills, which has already been pointed out by Vieira et al. (2009), who observe that this adoption possibly occurs due to the intention of the controller to maintain a certain degree of ownership dispersion in the market, conserving with this the liquidity of the company’s share. However, it is important to emphasize that this aspect deserves greater scrutiny, mainly in terms of the effects of the adoption of poison pills by companies with a concentrated ownership structure.

To investigate the association between the adoption of poison pills and the differentiated levels of corporate governance in the Brazilian stock market, we used logit and probit models, considering the binary nature of the dependent variable. Table 4 shows that the significance of the variables converges between the logit and probit links. However, it should be emphasized that the logit link presents a better fit because it has a lower Akaike Information Criterion (AIC).

Furthermore, seeking to qualify the goodness of fit, we performed the Hosmer-Lemeshow test, which has a null hypothesis that the observed and expected frequencies are equal. The results presented at the end of Table 4 indicate that the null hypothesis was not rejected in the estimated values (p-values > 5%), and thus, we verified that the estimated models do not present problems in relation to goodness of fit.

Also in relation to the fit of the models, we verified that the R2 Count, which report the probability of the correct classification of the models, indicates that models are classified correctly approximately 82% of the time to the extent that McFadden’s Adjusted R2 indicates that the model explains 32% of the total variability in the dependent variable. Finally, we verified that the estimated model does not present multicollinearity problems, given that there is not a strong correlation between the independent variables inserted in the econometric model, as demonstrated by the correlation matrix presented in Appendix A.

Based on Table 4, we show that there is a positive association between the levels of corporate governance and the adoption of poison pills by Brazilian publicly-traded companies. However, this association is restricted only to companies listed in the New Market and Level 2 segments. The coefficients indicate that the New Market listing is associated with an average increase of approximately 19% in the probability of the adoption of poison pills, in comparison with the base group (traditional segment), with companies listed in the Level 2 segment presenting a 6% greater probability of adoption.

The greater probability of the adoption of poison pills by companies listed in the New Market corroborates the view that these companies, because they emit only common shares and need to maintain a 25% free float, are more susceptible to hostile takeovers. That being so, the adoption of poison pills is relevant as a complementary device to corporate governance in regard to shareholder protection.

Table 4
Econometric model

Source: research data. Note: Logit link coefficients are presented as odds ratios. Standard errors are reported between parentheses. ***, **, * indicate significance at levels of 1%, 5% and 10% respectively.

Based on Table 4, we show that there is a positive association between the levels of corporate governance and the adoption of poison pills by Brazilian publicly-traded companies. However, this association is restricted only to companies listed in the New Market and Level 2 segments. The coefficients indicate that the New Market listing is associated with an average increase of approximately 19% in the probability of the adoption of poison pills, in comparison with the base group (traditional segment), with companies listed in the Level 2 segment presenting a 6% greater probability of adoption.

The greater probability of the adoption of poison pills by companies listed in the New Market corroborates the view that these companies, because they emit only common shares and need to maintain a 25% free float, are more susceptible to hostile takeovers. That being so, the adoption of poison pills is relevant as a complementary device to corporate governance in regard to shareholder protection.

In a complementary manner, the positive and statistically significant association between Level 2 and the adoption of poison pills could be explained due to the companies listed in this segment (like those listed in the New Market) having to adopt a broader group of governance rules than Level 1, prioritizing the rights of minority shareholders as demonstrated by Almeida et al. (2008). In this perspective, the greater level of protection for investors in higher levels of governance is corroborated by Bortolon et al. (2013) and Collares (2020), who just use Level 2 and the New Market as premium segments to capture the quality of corporate governance.

The non-significance of the Level 1 segment with the adoption of poison pills may be related to the fact that the companies of this segment are not required to adopt practices related to protecting minority shareholders. An example of this is the right to vote for those with preferred shares (originally without the right to vote) in operations that have to do with the configuration of the company’s control, such as merger or acquisition events, which is only required beginning with Level 2 of corporate governance.

Another aspect that signals greater concern with protecting minority shareholders, however, which is only required beginning with Level 2 is that in the case of the alienation of the control of the company, it is assured that holders of common and preferred shares will be treated in the same manner by the controlling shareholder (Soares, Peters, & Ciasca, 2017). In this sense, due to the main characteristics of Level 1 being practices related to the disclosure of information and share liquidity (Dalmácio et al., 2013), it is possible that the companies listed in this segment do not have a prerogative in their corporate governance action aspects related to the protection of shareholders such as the adoption of poison pills.

In terms of ownership concentration, it may be noted that the more concentrated a firm is, the lower the probability that it will adopt poison pills. This evidence is in line with the perspective that companies with higher concentrations of shares tend to have a lower propensity to adopt poison pills because the concentration of common shares naturally makes it difficult to alter control of the company.

Thus, considering that poison pills can be adopted by companies that also have concentrated control (Vieira et al., 2009), this negative relationship between ownership concentration and the adoption of poison pills shows that these anti-takeover devices may not be adopted within the Brazilian context due to the focus of managerial entrenchment, a situation which could occur when ownership concentration exerts a positive influence on the adoption of poison pills, thus indicating the search for, or maintenance of, managerial entrenchment.

In terms of the board size, the results indicate that larger boards are associated with a lower probability of companies adopting poison pills, which is in line with the view that an increase in the number of board members results in more diffuse decision-making (Hermalin & Weisbach, 2003), making it difficult to implement a protection device such as a poison pill.

In this sense, the negative relationship indicates that companies with smaller boards may have a greater propensity to adopt this anti-takeover device, in line with the perspective that smaller boards may be more participative in the managerial process, which leads to more effective decisions (Dah et al., 2017).

Regarding the firm size, the results indicate that larger firms have a smaller probability of adopting poison pills. In this way, the complexity and high operational costs which are involved in modifying the majority control of companies may make them less susceptible to hostile takeovers, thus reducing the need for the adoption of this anti-takeover device (Dah et al., 2017).

In terms of performance, the evidence points to a negative relationship between this variable and the probability of adopting poison pills, which is thus in line with evidence that firms with better performance make less attractive targets, and for this reason, they are less likely to adopt poison pills (Mallette & Fowler, 1992).

In terms of executive compensation, it has been verified that the level of compensation is positively associated with the adoption of poison pills, corroborating the view that managers are more likely to adopt defenses against acquisition, such as poison pills, when they have higher salaries (Dowen et al., 1994; Heron & Lie, 2006).

Thus, the adoption of this anti-takeover device by Brazilian companies may be influenced by factors that do not always benefit the shareholders. This perspective is based on the view that compensation may be seen as a factor which makes managers more likely to protect themselves against hostile takeovers, in that this event normally involves turnover in management and as a result the loss of compensation for these individuals (Dah et al., 2017).

Finally, in line with the findings of Dowen et al. (1994), the variables related to leverage and growth opportunities did not present significant statistics. Therefore, it is not possible to infer that these economic-financial factors have a relationship with the adoption of poison pills in Brazilian publicly-traded companies.

After the winsorization of the data at a 1% level, we verified through a boxplot that some outliers remained in the sample, which may bias the coefficients of the estimated models. In this sense, in line with Markle, Mills and Williams (in press), new regressions were estimated with winsorization of quantitative data at a 3% level to confirm whether the results converge with the evidence presented in Table 4.

The new estimates considering winsorization at a 3% level are presented in Model 2 in Appendix B, which demonstrates that the only variable which had its significance altered was the control variable Firm Size. Thus, we can confirm that the results converge with the findings reported in Table 4, considering the positive and statistically significant association with the New Market and Level 2 segments in the adoption of poison pills.

In a complementary manner, as a way to verify the robustness of the findings, we included proxies for alternative controls to examine whether the results remain constant in specific alternatives. The results of this robustness test are presented in Model 3 of Appendix B.

We used the cumulative percentage of voting shares held by the three top shareholders in relation to all of the voting shares as a proxy for ownership concentration (Crisóstomo et al., 2019), the natural logarithm of revenues as a proxy for firm size (Mallette & Fowler, 1992; Klapper & Love, 2004), return on equity as a proxy for performance (Mallette & Fowler, 1992; Darosi, 2014), the sum of fixed and variable compensation (without including stock options) as a proxy for executive compensation (Heron & Lie, 2006; Heron & Lie, 2015) and the ratio between total debt and total equity as a proxy for leverage (Comment & Schwert, 1995; Silva et al., 2018).

The results of the robustness test (Model 3) converge with the previous evidence that the adoption of poison pills is positively associated with the listing in New Market and Level 2 segments of corporate governance. However, we should pay attention to the influence of Performance on the adoption of poison pills to the extent that this variable was the only one whose statistical significance was altered, thus suggesting that the finding presented in Table 4 is susceptible to the utilized proxy.

Corresponding author: Tel. (16) 3315-3919 E-mail: yuri_azevedo@live.com(Y. G. P. Azevedo); hellenbomfim@hotmail.com(H. B. Gomes); shnakao@usp.br(S. H. Nakao) Universidade de São Paulo, Faculdade de Economia Administração e Contabilidade. Avenida:dos Bandeirantes, 3900 - Monte Alegre, Ribeirão Preto/SP - 14040900, Brazil.