IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/21245.html
   My bibliography  Save this paper

Cross-border Acquisitions and Labor Regulations

Author

Listed:
  • 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
    Note: CF IFM ITI LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w21245.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2012. "Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 527-554.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    5. Miguel A. Ferreira & Massimo Massa & Pedro Matos, 2010. "Shareholders at the Gate? Institutional Investors and Cross-Border Mergers and Acquisitions," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 601-644, February.
    6. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 489-510, September.
    7. Arturo Bris & Christos Cabolis, 2008. "The Value of Investor Protection: Firm Evidence from Cross-Border Mergers," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 605-648, April.
    8. David A. Matsa, 2010. "Capital Structure as a Strategic Variable: Evidence from Collective Bargaining," Journal of Finance, American Finance Association, vol. 65(3), pages 1197-1232, June.
    9. Ashwini K. Agrawal, 2012. "Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting," Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 187-226.
    10. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    11. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    12. Harford, Jarrad & Humphery-Jenner, Mark & Powell, Ronan, 2012. "The sources of value destruction in acquisitions by entrenched managers," Journal of Financial Economics, Elsevier, vol. 106(2), pages 247-261.
    13. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, August.
    14. Ann Harrison & Margaret McMillan, 2011. "Offshoring Jobs? Multinationals and U.S. Manufacturing Employment," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 857-875, August.
    15. Lin, Chen & Officer, Micah S. & Zou, Hong, 2011. "Directors' and officers' liability insurance and acquisition outcomes," Journal of Financial Economics, Elsevier, vol. 102(3), pages 507-525.
    16. Ishii, Joy & Xuan, Yuhai, 2014. "Acquirer-target social ties and merger outcomes," Journal of Financial Economics, Elsevier, vol. 112(3), pages 344-363.
    17. Martin Schindler & Mariya Aleksynska, 2011. "Labor Market Regulations in Low-, Middle- and High-Income Countries; A New Panel Database," IMF Working Papers 11/154, International Monetary Fund.
    18. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    19. Klasa, Sandy & Maxwell, William F. & Ortiz-Molina, Hernán, 2009. "The strategic use of corporate cash holdings in collective bargaining with labor unions," Journal of Financial Economics, Elsevier, vol. 92(3), pages 421-442, June.
    20. Julian Atanassov & E. Han Kim, 2009. "Labor and Corporate Governance: International Evidence from Restructuring Decisions," Journal of Finance, American Finance Association, vol. 64(1), pages 341-374, February.
    21. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    22. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
    23. Chyz, James A. & Ching Leung, Winnie Siu & Zhen Li, Oliver & Meng Rui, Oliver, 2013. "Labor unions and tax aggressiveness," Journal of Financial Economics, Elsevier, vol. 108(3), pages 675-698.
    24. Ana L. Revenga, 1992. "Exporting Jobs?The Impact of Import Competition on Employment and Wages in U. S. Manufacturing," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 255-284.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean-Marc Fournier, 2015. "The negative effect of regulatory divergence on foreign direct investment," OECD Economics Department Working Papers 1268, OECD Publishing.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:21245. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.