Cross-Border Acquisitions and Labor Regulations
59 Pages Posted: 29 May 2015
Date Written: May 28, 2015
Do labor regulations influence the reaction of stock markets and firm profitability to cross-border acquisitions? We discover that acquiring firms enjoy smaller abnormal stock returns and profits when targets are in countries with stronger labor protection regulations, i.e., in countries where laws, regulations, and policies increase the costs to firms of adjusting their workforces. These effects are especially pronounced when the target is in a labor-intensive or high labor-volatility industry. Consistent with labor regulations shaping the success of cross-border deals, we find that firms make fewer and smaller cross-border acquisitions into countries with strong labor regulations.
Keywords: Cross-border mergers and acquisitions, Multinational firms, International business, Labor standards, Labor market regulations
JEL Classification: G34; G38; J8
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