Does Speculative News Hurt Productivity? Evidence from Takeover Rumors

Abstract

Takeover speculation may hurt productivity because uncertainty and threat of job loss cause anxiety, distraction, and reduced collaboration and morale among employees. Using a large panel of OECD-headquartered firms, we show that firm productivity temporarily declines after announcements of speculative takeover rumors that do not materialize. This productivity dip is more pronounced for targets and for firms in countries with lower levels of employee rights and long-term orientation. Abnormal stock returns mirror these results. The evidence fosters our understanding of potential real effects of speculative news, which are common in financial markets, and the costs of the takeover threat.

Keywords: Distraction, Employee commitment, Employee rights, Fear of job loss, Productivity, Shareholder wealth, Takeover speculation

JEL Classification: D24, G00, G34, J24