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Do hostile takeovers reduce extramarginal wage payments?

  • Jagadeesh Gokhale
  • Erica L. Groshen
  • David Neumark

Hostile takeovers may have significant implications for long-term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments. We test the expropriation hypothesis by studying the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity. This paper improves on existing research by using firm- and establishment-level data from a salary survey of employers. In addition, we observe characteristics of wage and employment structures both before and after the occurrence of a hostile takeover and hence can see whether the data are consistent with reductions in extramarginal wage payments following such takeovers. Results from this ex post experiment provide evidence consistent with the hypothesis that hostile takeovers result in reductions of extramarginal wage payments to more-tenured workers, mostly through cutbacks in senior positions at firms with relatively steep wage profiles.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9215.

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Date of creation: 1992
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Handle: RePEc:fip:fedcwp:9215
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  11. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
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  24. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  25. Julie L. Hotchkiss, 1990. "Compensation policy and firm performance: An annotated bibliography of machine-readable data files," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 274-289, February.
  26. 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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