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Employee-Manager Alliances and Shareholder Returns from Acquisitions

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  • Masulis, Ronald W.
  • Wang, Cong
  • Xie, Fei

Abstract

We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, they entrench incumbent managers and allow them to pursue value-destroying acquisitions by undercutting the disciplinary influence of the corporate control market. Importantly, employee support for managers is conditional on favorable treatment of employees. Our findings are consistent with Pagano and Volpin’s theory of worker-management alliances and highlight the potential risks associated with large employee voting power.

Suggested Citation

  • Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2020. "Employee-Manager Alliances and Shareholder Returns from Acquisitions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(2), pages 473-516, March.
  • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:2:p:473-516_4
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    Cited by:

    1. Wang, Maochuan & Yan, Youliang, 2023. "Employee treatment and corporate investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 128(C).
    2. Akdogu, Evrim & Aktas, Nihat & Simsir, Serif Aziz, 2021. "The effect of unionization on industry merger activity around negative economy-wide shocks," International Review of Financial Analysis, Elsevier, vol. 76(C).
    3. Zheng, Zhigang & Li, Jiarong & Ren, Xingzi & Guo, Jie Michael, 2023. "Does corporate ESG create value? New evidence from M&As in China," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    4. Kim, Jeong-Bon & Zhang, Eliza Xia & Zhong, Kai, 2021. "Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    5. Yi Si & Chongwu Xia, 2023. "The Effect of Human Capital on Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 187(3), pages 589-609, October.
    6. Najlaa Kallousa & Youngki Jang & Boochun Jung & Hussein Warsame, 2023. "Labor unions and post‐acquisition integration capability: Evidence from goodwill impairment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 764-794, March.

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