Do Employee Interests Affect Target Board Decisions About Acquisition Offers? Evidence from Changes in Unemployment Insurance

Do Employee Interests Affect Target Board Decisions About Acquisition Offers? Evidence from Changes in Unemployment Insurance

Lixiong Guo, Jing Kong, Ronald Masulis

Series number :

Serial Number: 
728/2021

Date posted :

February 11 2021

Last revised :

March 18 2021
SSRN Share

Keywords

  • Employees • 
  • Unemployment Insurance • 
  • mergers and acquisitions • 
  • board of directors

We explore whether employee interests affect the evaluation of acquisition offers by target boards of directors. Exploiting changes in state unemployment insurance (UI) as sources of exogenous variation in worker unemployment costs, we find that lower unemployment costs increase acquisition activity. Adoption of state constituency statutes strengthens this relation.

Boards of target firms having high labor intensity, low short-term institutional ownership, headquartered in low population or high social capital counties, and with female independent directors, more often strongly weight employee interests. Higher UI levels are also associated with larger post-acquisition layoffs. Our evidence supports theories rationalizing target boards’ consideration of employee interests.

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Authors

Real name:
Lixiong Guo
Real name:
Jing Kong