| In a well-functioning labor market, managers whose interests diverge from shareholder interests should lose their positions more often than managers whose interests converge with shareholder interests. I use the market reaction to poison pill announcements to differentiate managers and directors who work in the best interests of shareholders from their peers whose actions appear to diverge from shareholder interests. These groups are studied for differences in turnover and re-employment in the years following the poison pill announcement. The standardized prediction errors from Brickley, Coles and Terry (1994) are analyzed to determine if turnover is related to the signs of the residuals. The methodologies used to analyze the turnover rates include non-parametric tests of difference in means and medians, ordinary least squares regressions, multi-stage regressions to account for simultaneity of the regressors, probit regressions to account for the discreteness of the data and right censored regressions to account for the observations being cut off after three years. The control variables include manager age, the existence of shareholder proposals, shareholder lawsuits, takeover attempts, corporate restructuring, and proxy fights. The results indicate that labor markets remove top managers and directors from their positions more often when they adopt value-reducing poison pills. Further the top managers and directors also lose more seats on other boards and top managers are less likely to be re-employed at a similar position within three years of losing their current position. |
