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The Effect Of Takeovers On The Employment And Wages Of Central-Office And Other Personnel

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Author Info

  • LICHTENBERG, F.R.
  • SIEGEL, D.

Abstract

Recent high rates of takeover activity have stimulated considerable interest and concern among policymakers and the public about changes in corporate ownership, but relatively little evidence about the "read" (as opposed to financial) effects of takeovers has been available. This paper presents evidence concerning the effects of ownership change on the employment and wages of central-office workers -- according to some views, those likely to be most affected by takeovers -- and contracts them with the effects on manufacturing plant employees. The evidence is based on a large, longitudinal, plant-level data set derived from Census Bureau surveys of both administrative and production establishments. The major findings of the analysis are as follows. Central offices that changed owners between 1977 and 1982 had substantially lower -- about 16 percent lower -- employment growth during that period than central offices not changing owners. (There was, however, no significant difference in the growth of R&D employment.) They also had slower growth in wages -- about 9 percent lower. Changing owners had a much more negative effect on employment growth in central offices than it did in manufacturing plants: 16 percent compared to 5 percent. This implies that the ratio of central-office to plant employees declines about 11 percent in firms changing owners: about 7.2 administrators per 10-00 plant employees are eliminated. These findings are consistent with the view that reduction of administrative overhead is an important motive for changes in ownership. Failure to account for reductions in central-office employment results in a substantial (about 40 percent) underestimate of the productivity gains associated with ownership change. We also provide evidence concerning the relationship between firm size and administrative-intensity.

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Bibliographic Info

Paper provided by Columbia - Graduate School of Business in its series Papers with number fb-_89-05.

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Length: 36 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:fth:colubu:fb-_89-05

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Postal: U.S.A.; COLUMBIA UNIVERSITY, GRADUATE SCHOOL OF BUSINESS, PAINE WEBBER , New York, NY 10027 U.S.A
Phone: (212) 854-5553
Web page: http://www.columbia.edu/cu/business/
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Related research

Keywords: research and development ; administrative reforms ; size of enterprise;

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References

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  1. Frank R. Lichtenberg & Donald Siegel, 1987. "Productivity and Changes in Ownership of Manufactoring Plants," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 643-684.
  2. Bronwyn H. Hall, 1988. "The Effect of Takeover Activity on Corporate Research and Development," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 69-100 National Bureau of Economic Research, Inc.
  3. Beckmann, Martin J., 1977. "Management production functions and the theory of the firm," Journal of Economic Theory, Elsevier, Elsevier, vol. 14(1), pages 1-18, February.
  4. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 671-98, November.
  5. Charles Brown & James L. Medoff, 1987. "The Impact of Firm Acquisitions on Labor," NBER Working Papers 2273, National Bureau of Economic Research, Inc.
  6. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 2(1), pages 7-20, Winter.
  7. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  8. Lichtenberg, Frank R, 1988. "Estimation of the Internal Adjustment Costs Model Using Longitudinal Establishment Data," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 421-30, August.
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Citations

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Cited by:
  1. Frank R. Lichtenberg, 1990. "Industrial De-Diversification and Its Consequences for Productivity," Economics Working Paper Archive wp_35, Levy Economics Institute.
  2. Frank R. Lichtenberg & Moshe Kim, 1989. "The Effects of Mergers on Prices, Costs, and Capacity Utilization in the U.S. Air Transportation Industry, 1970-84," NBER Working Papers 3197, National Bureau of Economic Research, Inc.
  3. Gokhale, Jagadeesh & Groshen, Erica L & Neumark, David, 1995. "Do Hostile Takeovers Reduce Extramarginal Wage Payments?," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 470-85, August.
  4. Frank R Lichtenberg & Donald Siegel, 1989. "The Effects Of Leveraged Buyouts On Productivity And Related Aspects Of Firm Behavior," Working Papers 89-5, Center for Economic Studies, U.S. Census Bureau.
  5. Chemla, Gilles, 2004. "Takeovers and the dynamics of information flows," Economics Papers from University Paris Dauphine 123456789/6359, Paris Dauphine University.
  6. Gaston, Noel, 1997. "Efficiency wages, managerial discretion, and the fear of bankruptcy," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 33(1), pages 41-59, May.
  7. Chemla, Gilles, 2005. "Hold-up, stakeholders and takeover threats," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 14(3), pages 376-397, July.
  8. Robert H Mcguckin, 1990. "Longitudinal Economic Data At The Census Bureau: A New Database Yields Fresh Insight On Some Old Issues," Working Papers 90-1, Center for Economic Studies, U.S. Census Bureau.
  9. Joshua Rosett, 1989. "Do Union Wealth Concessions Explain Takeover Premiums? The Evidence on Contract Wages," NBER Working Papers 3187, National Bureau of Economic Research, Inc.

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