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Do Hostile Takeovers Reduce Extramarginal Wage Payments?

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  • Jagadeesh Gokhale
  • Erica L. Groshen
  • David Neumark

Abstract

Hostile takeovers may reduce the prevalence of long-term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments. Our tests of two versions of the expropriation hypothesis improve on existing research by using firm- and establishment-level data from an employer salary survey, and by performing both ex ante and ex post tests. First, we study the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity, and find little evidence of an expropriation motive. Then. since we observe wage and employment structures both before and after takeovers. we investigate whether proxies for extramarginal wages drop after hostile takeovers. The ex post experiments provide evidence consistent with one version of the expropriation hypothesis. In particular, such takeovers appear to reduce extramarginal wage payments to more-tenured workers, mostly through flattening wage-seniority profiles in firms with relatively senior work forces.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4346.

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Date of creation: Apr 1993
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Publication status: published as Review of Economics and Statistics, Vol. 77, no. 3 (1995): 470-485.
Handle: RePEc:nbr:nberwo:4346

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  23. Erica L. Groshen, 1991. "Rising inequality in a salary survey: another piece of the puzzle," Working Paper 9121, Federal Reserve Bank of Cleveland.
  24. Petersen, Mitchell A, 1992. "Pension Reversions and Worker-Stockholder Wealth Transfers," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 1033-56, August.
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