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Hold-Up, Industrial Relations and Takeover Threats


  • Chemla, Gilles


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.

Suggested Citation

  • Chemla, Gilles, 1998. "Hold-Up, Industrial Relations and Takeover Threats," CEPR Discussion Papers 2021, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2021

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    References listed on IDEAS

    1. Anderson, Kym & Tyers, Rodney, 1993. "Implications of EC Expansion for European Agricultural Policies, Trade and Welfare," CEPR Discussion Papers 829, C.E.P.R. Discussion Papers.
    2. Maurel, Mathilde & Cheikbossian, Guillaume, 1998. "The New Geography of Eastern European Trade," Kyklos, Wiley Blackwell, vol. 51(1), pages 45-71.
    3. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
    4. Agnès Bénassy-Quéré & Amina Lahrèche-Revil, 1998. "Pegging the CEECs Currencies to the Euro," Working Papers 1998-04, CEPII research center.
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    Cited by:

    1. Marco Pagano & Paolo F. Volpin, 2005. "The Political Economy of Corporate Governance," American Economic Review, American Economic Association, vol. 95(4), pages 1005-1030, September.
    2. Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109 Elsevier.

    More about this item


    Bargaining; ESOPs; Investment; Takeovers; wage flexibility;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance


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