Labor Restructuring and Acquisitions: Evidence from State Adoption of the Worker Adjustment and Retraining Notification Act

Abstract

We examine whether labor restructuring is an important consideration in making acquisition decisions using U.S. interstate variations in the Worker Adjustment and Retraining Notification Act. We show that the staggered introduction of this labor layoff law has a negative impact both on the aggregated number and value of acquisition activities and on the acquirer’s announcement returns. The decrease in acquirer returns is only due to lower combined synergies, rather than wealth transferred to the target’s shareholders from the acquirer’s shareholders. We also find that the labour restructuring activities are more likely to happen in target companies and the adoption of Mini WARN Act in acquirer headquarters state has no impact on acquisition activities. Overall, our paper suggests that labor restructuring is an important source to generate acquisition operating synergies.

Keywords: WARN Act, Labor protection, Acquisitions, Synergies

JEL Classification: J08, G14, G34, K31