Mergers and Managers: Manager-Specific Wage Premiums and the Market for Corporate Control

Abstract

This paper shows that some managers systematically pay higher wages to their workers, and firms headed by these managers are targets of M&As. We use a manager-firm-worker matched dataset covering the entire population of Denmark from 1995 to 2011 to identify manager-specific wage premiums from both worker and manager movements across firms. We find that the identity of managers does matter for wages, and variation in manager-specific wage premiums accounts for a significant part of between-firm wage inequality. Firms 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. Manager-specific wage premiums are not correlated with productivity and other firm policies, and seem to stem from managers' traits and fairness views that are shaped by their personal experiences. Our results suggest that the market for corporate control selects managers who pay lower wages and redistributes wealth from workers to shareholders.

Keywords: managerial style, mergers and acquisitions, wages, management, inequality

JEL Classification: G34, G30, J31, J30, M52, J53, D22