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

38 Pages Posted: 16 Mar 2016 Last revised: 4 Oct 2017

See all articles by Adam Welker

Adam Welker

Tulane Universty, A.B. Freeman School of Business

Robert Chatt

Pennsylvania State University

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Date Written: September 1, 2017

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in both total mergers and acquisitions (M&A) dollar volume and average M&A size as well as an immediate increase in withdrawn deals.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

Suggested Citation

Welker, Adam and Chatt, Robert and Gustafson, Matthew, Firing Frictions and the U.S. Mergers and Acquisitions Market (September 1, 2017). Available at SSRN: https://ssrn.com/abstract=2747579 or http://dx.doi.org/10.2139/ssrn.2747579

Adam Welker

Tulane Universty, A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Robert Chatt

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Matthew Gustafson (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

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