Essays in Corporate Finance and Labor Economics
Cheung Kong Graduate School of Business
August 2, 2011
My dissertation is composed of three essays addressing the following three questions: First, how do mergers and acquisitions create value? Second, what role does labor union play in affecting merger outcomes? Third, how do CEOs' career concerns impact firms' restructuring decisions? In the first essay, I investigate the underlying sources of gains from takeovers. Using plant-level data from the U.S. Census Bureau, I show that acquirers significantly reduce investments, wages, and employment in target plants, though output is unchanged relative to comparable plants. Acquirers also aggressively shut down target plants. Moreover, these changes help explain the merging firms' announcement returns. The total announcement returns to the combined firm are driven by improvements in the target firm's productivity. Also, targets with greater post-takeover productivity improvements receive higher premiums from acquirers. These results provide some of the first empirical evidence on the direct relation between productivity, labor, and stock returns in the context of takeovers. In the second essay, I examine the role of labor unions in takeovers. I show that gains to merging firms' shareholders are positively associated with target's union membership. Also, target's shareholders capture a larger share of joint gains when the target's union is weaker. I then analyze the wage and employment outcomes for a large sample of firms that were acquired between 1981 and 2002. I find that after a takeover, target establishments exhibit net decline in wages and employment, especially when target's union membership is high. These results highlight the role of takeovers in unlocking the economic rents previously captured by labor unions. In the third essay, I compare how career concerns affect the real investment decisions of younger and older CEOs. I show that younger CEOs undertake more active investment activities. They are more likely to enter new lines of business, as well as exit existing lines of business. They prefer growth through acquisitions, while older CEOs prefer to build new plants. This busier investment style of the younger CEOs appears to be relatively successful since younger CEOs are associated with higher plant-level efficiency compared to older CEOs.
Keywords: CEO, takeovers, productivity, labor union, career concerns, restructuring
JEL Classification: G34working papers series
Date posted: August 3, 2011
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