The M&A Rumor Productivity Dip

Abstract

M&A rumors cause anxiety, distraction, and reduced employee morale due to the implicit threat of job loss. Using an international sample of M&A rumors that do not materialize, we show that firm productivity temporarily declines after rumors surface. This productivity dip is more pronounced for target firms and for firms in countries with less employment protection, collective bargaining, and long-term orientation. Stock returns mirror these results, suggesting that rumors destroy shareholder value. The evidence fosters our understanding of the implications of a common phenomenon in financial markets, i.e., rumors, and the dark side of the market for corporate control.

Keywords: Employee rights, Firm productivity, Human capital, M&A rumors, Shareholder value, Threat of job loss

JEL Classification: D24, G00, G34, J24