Cross-border acquisitions and employment policies

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Vol. 62; p. 101575
• Main Authors: Liang, Hao, Renneboog, Luc, Vansteenkiste, Cara
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2020
• Subjects: Cross-border mergers and acquisitions; Employment policy; Job security; Monetary incentives; Takeovers; Workforce integration; M14; Job security; Workforce integration; Takeovers; G34; Cross-border mergers and acquisitions; Monetary incentives; J24; Employment policy
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2020.101575

Using novel firm-level data on employment quality in an international sample of M&A deals, this paper investigates the cost-benefit trade-off faced by acquirers when providing generous employment policies. We find that shareholders react more positively to deal announcements by acquirers providing generous employee incentives when the deal is domestic, but negatively when the deal is cross-border. These effects are primarily driven by the provision of monetary incentives and are strongest for firms in skilled industries. We argue that generous employment policies increase synergy gains and reduce labor adjustment costs in a domestic takeover. In cross-border deals, however, costs associated with managing employee policies across borders and lack of opportunities for eliminating work duplication negatively affect acquirer returns. Nevertheless, we find that country-specific acquisition experience can mitigate these negative effects. Our results cannot be explained by country-level labor regulations or by target-level employment policies. •Employee-friendly policies are positively related to acquirer returns in domestic M&As, but negatively in cross-border M&As.•Effects are driven by monetary incentives, and cannot be explained by labor regulations or target-level employee relations.•Effects are concentrated on the acquirer's returns rather than the target's returns.•Employee-friendly policies can reduce labor adjustment costs during a firm's reorganization.•But they can create additional costs when workforce integration is more uncertain and complex.