Employee-Manager Alliances and Shareholder Returns from Acquisitions

73 Pages Posted: 10 Jan 2017 Last revised: 1 Dec 2018

See all articles by Ronald W. Masulis

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Cong Wang

The Chinese University of Hong Kong, Shenzhen

Fei Xie

University of Delaware - Lerner College of Business and Economics

Date Written: October 6, 2018

Abstract

We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, they entrench incumbent managers and allow them to pursue value-destroying acquisitions by undercutting the disciplinary influence of the corporate control market. Importantly, employee support for managers is conditional on favorable treatment of employees. Our findings are consistent with Pagano and Volpin’s (2005) theory of worker-management alliances and highlight the potential risks associated with large employee voting power.

Keywords: Market for Corporate Control, Takeover Protection, Worker-Manager Alliance, Employee Stock Ownership Plan, Acquisition Profitability, Agency Problems, Employee Treatment

JEL Classification: G34, J31, J32

Suggested Citation

Masulis, Ronald W. and Wang, Cong and Xie, Fei, Employee-Manager Alliances and Shareholder Returns from Acquisitions (October 6, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 583/2018. Available at SSRN: https://ssrn.com/abstract=2895745 or http://dx.doi.org/10.2139/ssrn.2895745

Ronald W. Masulis (Contact Author)

University of New South Wales - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Cong Wang

The Chinese University of Hong Kong, Shenzhen ( email )

Fei Xie

University of Delaware - Lerner College of Business and Economics ( email )

Newark, DE 19711
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
221
rank
133,433
Abstract Views
991
PlumX Metrics