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Hold-Up, Industrial Relations and Takeover Threats

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  • Chemla, Gilles

Abstract

This paper analyses the impact of takeover threats on long-term industrial relations. It argues that takeover threats dramatically affect the way in which an increase in workers' bargaining power affects (under)investment. Without loss of generality, we focus on the particular example of the economic consequences of union power in wage negotiations. In the absence of takeovers, the higher workers' bargaining power, the higher their wage flexibility and effort and the firm's capacity to invest, but the lower the firm's incentive to invest. Under the threat of a takeover reducing their expected wages, the workers' effort and wage flexibility are restricted and decrease with the workers' initial bargaining power. Various takeover defence mechanisms are compared.

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File URL: http://www.cepr.org/pubs/dps/DP2021.asp
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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2021.

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Date of creation: Nov 1998
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Handle: RePEc:cpr:ceprdp:2021

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Related research

Keywords: Bargaining; ESOPs; Investment; Takeovers; wage flexibility;

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Cited by:
  1. Pagano, Marco & Volpin, Paolo, 2001. "The Political Economy of Corporate Governance," CEPR Discussion Papers 2682, C.E.P.R. Discussion Papers.

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