Employment Effects of Corporate Takeovers

The influence of corporate governance on labour management is one of the key topics of the contemporary academic debate. In particular, there is a growing interest in better understanding the employment effects of takeovers. We investigate this issue in four empirical chapters. The first empirical chapter shows that acquired firms’ prior performance is the key variable in explaining post-takeover workforce adjustments: acquired firms’ poorer performance leads to greater workforce reductions post-merger. Industry relatedness also leads to higher levels of workforce adjustments. However, the results show that hostility does not lead to higher workforce reductions after controlling for other relevant variables. In contrast to prior research conclusions, the results show that high premiums do not induce workforce reductions. These results imply that workforce reductions are undertaken for efficiency improvement purposes. The second empirical chapter shows that acquiring firms’ performance decline may also induce workforce reductions post-merger. At the same time, the results show that workforce reductions are inversely associated with subsequent performance change. This implies that post-merger workforce reductions positively affect firm performance. The third empirical chapter shows that takeover announcement shareholder gains do not explain job losses and wage cuts, although there is some evidence of rent expropriation after hostile and cash-paid acquisitions. In contrast, there is a strong positive association between acquirers’ long-run abnormal returns and post-merger employee wealth concessions. This association suggests that post-takeover jobs and wage growth depends on value created by takeovers: if shareholders gain from takeovers, then employees also benefit from such transactions; if shareholders lose from takeovers, then employees also suffer from them. Finally, the fourth empirical chapter shows that mergers reduce demand for labour. A contribution of this chapter is that it confirms that decline in labour demand is larger after acquisitions that involve layoffs than after acquisitions that do not. This greater decrease in labour demand in layoff-involving acquisitions may justify workforce reductions post-merger. The general conclusion of the thesis is that mergers do not always negatively affect labour and that post-merger employee layoffs are usually undertaken for efficiency improvement purposes.