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Employment Protection and Takeovers

55 Pages Posted: 16 Jun 2015 Last revised: 9 May 2017

Olivier Dessaint

University of Toronto - Rotman School of Management

Andrey Golubov

University of Toronto - Rotman School of Management

Paolo F. Volpin

City University London - Faculty of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 9, 2016

Abstract

Labor restructuring is a key driver of takeovers and the associated synergy gains worldwide. In a difference-in-differences research design, we show that major increases in employment protection reduce takeover activity by 14-27% and the combined firm gains (synergies) by over half. Consistent with the labor channel behind these effects, deals with greater potential for workforce restructuring show a greater reduction in volume, number, and synergies. Increases in employment protection impede layoffs, resulting in wage costs that match the magnitude of synergy losses. Offer prices are not fully adjusted, with both bidders and targets exhibiting lower returns following the reforms.

Keywords: Employment Protection, Takeovers, Mergers and Acquisitions, Synergy Gains, Premiums, Efficiency

JEL Classification: J30, G14, G34, K31

Suggested Citation

Dessaint, Olivier and Golubov, Andrey and Volpin, Paolo F., Employment Protection and Takeovers (September 9, 2016). Journal of Financial Economics (JFE), Forthcoming; Rotman School of Management Working Paper No. 2619028. Available at SSRN: https://ssrn.com/abstract=2619028 or http://dx.doi.org/10.2139/ssrn.2619028

Olivier Dessaint

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Andrey Golubov (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Paolo Volpin

City University London - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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