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Cross-border Acquisitions and Labor Regulations

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  • Ross Levine
  • Chen Lin
  • Beibei Shen

Abstract

Do labor regulations influence the reaction of stock markets and firm profitability to cross-border acquisitions? We discover that acquiring firms enjoy smaller abnormal stock returns and profits when targets are in countries with stronger labor protection regulations, i.e., in countries where laws, regulations, and policies increase the costs to firms of adjusting their workforces. These effects are especially pronounced when the target is in a labor-intensive or high labor-volatility industry. Consistent with labor regulations shaping the success of cross-border deals, we find that firms make fewer and smaller cross-border acquisitions into countries with strong labor regulations.

Suggested Citation

  • Ross Levine & Chen Lin & Beibei Shen, 2015. "Cross-border Acquisitions and Labor Regulations," NBER Working Papers 21245, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21245
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    Cited by:

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    2. Jean-Marc Fournier, 2015. "The negative effect of regulatory divergence on foreign direct investment," OECD Economics Department Working Papers 1268, OECD Publishing.
    3. Liang, H. & Renneboog, Luc & Vansteenkiste, Cara, 2017. "Corporate Employee-Engagement and Merger Outcomes," Other publications TiSEM ab3f7a1d-a202-48b7-9c75-1, Tilburg University, School of Economics and Management.
    4. Liang, Hao & Renneboog, Luc & Vansteenkiste, Cara, 2017. "Cross-Border Acquisitions and Employee-Engagement," Other publications TiSEM 302b5e09-4d1d-4b32-9d74-7, Tilburg University, School of Economics and Management.
    5. Liang, H. & Renneboog, Luc & Vansteenkiste, C., 2020. "Cross-border acquisitions and employment policies," Other publications TiSEM 23784b4f-1736-4990-af3d-2, Tilburg University, School of Economics and Management.
    6. Ahmad, Muhammad Farooq & Lambert, Thomas, 2019. "Collective bargaining and mergers and acquisitions activity around the world," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 21-44.
    7. Liang, Hao & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Cross-border acquisitions and employment policies," Journal of Corporate Finance, Elsevier, vol. 62(C).

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    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J8 - Labor and Demographic Economics - - Labor Standards

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