Mergers and Managers: Manager-Specific Wage Premiums and Rent Extraction in M&As

Abstract

This paper shows that some managers pay higher wage premiums to their workers and these managers are targets of M&As. We use a manager-firm-worker matched dataset covering the population of Denmark from 1995 to 2011 and develop a novel framework to measure manager styles in wage-setting by tracking workers and managers across firms over time. We find that individual managers do matter for wages, and variation in manager fixed effects can explain a significant part of wage differences between firms. Establishments with high wage premiums due to generous managers are more likely to be acquired, and experience higher manager turnover and larger wage declines after acquisitions. Lower wages have little effect on firms’ productivity, and therefore represent a transfer from workers to shareholders. The replacement of high-paying managers accounts for almost all of the wage decline and about half the shareholder gains in all M&As, suggesting that rent extraction might be a major motive for merger transactions.

JEL Classification: G34, G30, J31, M52, J50, D22