Firing Frictions and the U.S. Mergers and Acquisitions Market

Abstract

Following the adoption of state laws that increase firing costs, there is an immediate and persistent 30% reduction in both total mergers and acquisitions (M&A) dollar volume and average M&A size as well as an immediate increase in withdrawn deals. Firing costs do not affect M&A announcement returns, but there are negative returns surrounding the announcement of state laws that increase firing frictions, especially for future M&A targets. These findings suggest that post-merger employee turnover is a first-order source of value for large U.S. mergers and low firing costs are one reason the U.S. houses the world’s most active M&A market.

Keywords: Mergers and Acquisitions, Firing Costs, Wrongful Discharge Laws

JEL Classification: G34, J21