Firing Frictions and the U.S. Mergers and Acquisitions Market
38 Pages Posted: 16 Mar 2016 Last revised: 4 Oct 2017
Date Written: September 1, 2017
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in both total mergers and acquisitions (M&A) dollar volume and average M&A size as well as an immediate increase in withdrawn deals.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: Suggested Citation