OUTSIDE DIRECTORS AND THE ADOPTION OF POISON PILLS

We find that the average stock-market reaction to announcements of poi son pills is positive when the board has a majority of outside directo rs and negative when it does not. The probability that a subsequent co ntrol contest is associated with an auction is also positively related to the fraction of outsiders on the board. These results are largely driven by directors who are retired executives from other companies. T he evidence suggests that outside directors serve the interests of sha reholders.