Employees and the market for corporate control

We find that firms that treat their employees better are less likely to be acquired. The shareholders of employee-friendly targets also receive lower premiums and smaller share of the surplus created by the deal. We also show that bidders tend to improve their employee policy following the acquisition of R&D-intensive targets. Furthermore, the improvement of employee policy is stronger when bidders increase their R&D expenditures in the new firm. The most likely explanation of our results is the importance of human capital in the production process. The agency conflict between managers and shareholders does not seem to be an important factor for employee policy.