This paper tests hypotheses about the wealth effects of poison pill securities and hypotheses about the characteristics of firms that adopt them. Our estimates indicate that poison pill defenses reduce stockholder wealth by a statistically significant amount. We also find that firms that adopt poison pill defenses are significantly less profitable than the average firm in their industries during the year prior to adoption. Moreover, the managers of these firms hold statistically significantly smaller fractions of their own firms' stock than the average fraction held by managers of other firms in the same industries.

A dividend tax penalty creates profitable trading opportunities for short-term traders with sufficiently low transaction costs. In stocks with ex-dividend day returns affected by short-term trading, ex-day returns are positively correlated with transaction costs. Data from 1964–1985 indicate that short-term traders are the marginal investors in high-yield stocks, primarily since the introduction of negotiated commissions on the NYSE. Short-term trading is not evident in low-yield stocks, nor does it appear prevalent before negotiated commissions.