Corporate Takeovers and Non-Financial Stakeholders

Greene, Daniel; Kini, Omesh; Shen, Mo; Shenoy, Jaideep "Corporate Takeovers and Non-Financial Stakeholders." In the Oxford Research Encyclopedia of Economics and Finance. Oxford University Press. doi: 10.1093/acrefore/9780190625979.013.617, Forthcoming

41 Pages Posted: 30 Nov 2020

See all articles by Daniel Greene

Daniel Greene

Clemson University

Omesh Kini

Georgia State University

Mo Shen

Auburn University

Jaideep Shenoy

University of Connecticut

Date Written: October 7, 2020

Abstract

A large body of work has examined the impact of corporate takeovers on the financial stakeholders (shareholders and bondholders) of the merging firms. Since the late 2000s, empirical research has increasingly highlighted the crucial role played by the non-financial stakeholders (labor, suppliers, customers, government, and communities) in these transactions. This article surveys studies that examine the interplay between corporate takeovers and the non-financial stakeholders of the firm.

Financial economists have long viewed the firm as a nexus of contracts between various stakeholders connected to the firm. Corporate takeovers not only play an important role in redefining the broad boundaries of the firm, they also result in major changes to corporate ownership and structure. In the process, takeovers can significantly alter the contractual relationships with non-financial stakeholders. Because the firm’s relationships with these stakeholders are governed by implicit and explicit contracts, circumstances can arise that allow acquiring firms to, fully or partially, abrogate these contracts and extract rents from non-financial stakeholders after deal completion. In contrast, non-financial stakeholders can also potentially benefit from a takeover if they get to share in any efficiency gains that are generated in the deal.

Given this framework, the ex ante importance of these contractual relationships can have a bearing on the efficacy of takeovers. The ability to alter contractual relationships ex post can affect the propensity of a takeover and merging firms’ shareholders, and, in turn, impact non-financial stakeholders. Non-financial stakeholders will be more vested in post-takeover success if they can trust the acquiring firm to not take actions that are detrimental to them. The big picture that emerges from the surveyed literature is that non-financial stakeholder considerations affect takeover decisions and post-takeover outcomes. Moreover, takeovers also have an impact on non-financial stakeholders. The directions of all these effects, however, are dependent on the economic environment in which the merging firms operate.

Keywords: corporate takeovers, non-financial stakeholders, labor, suppliers, customers, governments, culture

JEL Classification: G34, G32, M14

Suggested Citation

Greene, Daniel and Kini, Omesh and Shen, Mo and Shenoy, Jaideep, Corporate Takeovers and Non-Financial Stakeholders (October 7, 2020). Greene, Daniel; Kini, Omesh; Shen, Mo; Shenoy, Jaideep "Corporate Takeovers and Non-Financial Stakeholders." In the Oxford Research Encyclopedia of Economics and Finance. Oxford University Press. doi: 10.1093/acrefore/9780190625979.013.617, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3708241

Daniel Greene (Contact Author)

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

Omesh Kini

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

Mo Shen

Auburn University ( email )

Auburn, AL 36849
United States

Jaideep Shenoy

University of Connecticut ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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