IDEAS home Printed from https://ideas.repec.org/a/pal/jintbs/v51y2020i2d10.1057_s41267-019-00281-1.html
   My bibliography  Save this article

Cross-border acquisitions: Do labor regulations affect acquirer returns?

Author

Listed:
  • Ross Levine

    (University of California
    The NBER)

  • Chen Lin

    (University of Hong Kong)

  • Beibei Shen

    (Shanghai University of Finance and Economics)

Abstract

Do cross-country differences in labor regulations shape (1) acquiring firms’ announcement returns and post-acquisition profits, costs, and revenues from cross-border deals, (2) the selection of cross-border targets, or (3) the success rates of cross-border offers? We discover that acquiring firms enjoy smaller abnormal returns and post-deal performance gains with targets in stronger labor protection countries; acquirers are more likely to purchase labor-dependent targets in weak labor regulation countries and more likely to use cross-border acquisitions to enter new markets when targets are in stronger labor regulation countries; and offer success rates fall when targets are in stronger labor regulation countries.

Suggested Citation

  • Ross Levine & Chen Lin & Beibei Shen, 2020. "Cross-border acquisitions: Do labor regulations affect acquirer returns?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(2), pages 194-217, March.
    • Handle: RePEc:pal:jintbs:v:51:y:2020:i:2:d:10.1057_s41267-019-00281-1
    DOI: 10.1057/s41267-019-00281-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41267-019-00281-1
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41267-019-00281-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Isil Erel & Yeejin Jang & Michael S. Weisbach, 2015. "Do Acquisitions Relieve Target Firms’ Financial Constraints?," Journal of Finance, American Finance Association, vol. 70(1), pages 289-328, February.
    2. Ingmar Björkman & Günter K Stahl & Eero Vaara, 2007. "Cultural differences and capability transfer in cross-border acquisitions: the mediating roles of capability complementarity, absorptive capacity, and social integration," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 658-672, July.
    3. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    4. Errunza, Vihang R & Senbet, Lemma W, 1984. "International Corporate Diversification, Market Valuation, and Size-Adjusted Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 727-743, July.
    5. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    6. Bülent Aybar & Aysun Ficici, 2009. "Cross-border acquisitions and firm value: An analysis of emerging-market multinationals," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(8), pages 1317-1338, October.
    7. Errunza, Vihang R & Senbet, Lemma W, 1981. "The Effects of International Operations on the Market Value of the Firm: Theory and Evidence," Journal of Finance, American Finance Association, vol. 36(2), pages 401-417, May.
    8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    9. Ruback, Richard S & Zimmerman, Martin B, 1984. "Unionization and Profitability: Evidence from the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1134-1157, December.
    10. 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(3), pages 489-510, September.
    11. Lee, Kyeong Hun & Mauer, David C. & Xu, Emma Qianying, 2018. "Human capital relatedness and mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 129(1), pages 111-135.
    12. Mr. Martin Schindler & Ms. Mariya Aleksynska, 2011. "Labor Market Regulations in Low-, Middle- and High-Income Countries: A New Panel Database," IMF Working Papers 2011/154, International Monetary Fund.
    13. Arturo Bris & Christos Cabolis, 2008. "The Value of Investor Protection: Firm Evidence from Cross-Border Mergers," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 605-648, April.
    14. Jesse A Ellis & Sara B Moeller & Frederik P Schlingemann & René M Stulz, 2017. "Portable country governance and cross-border acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 148-173, February.
    15. 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.
    16. Amar Gande & Christoph Schenzler & Lemma W Senbet, 2009. "Valuation effects of global diversification," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(9), pages 1515-1532, December.
    17. Ruth V. Aguilera & Birgitte Grøgaard, 2019. "The dubious role of institutions in international business: A road forward," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(1), pages 20-35, February.
    18. Loughran, Tim & Vijh, Anand M, 1997. "Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-1790, December.
    19. Ronald W. Masulis & Cong Wang & Fei Xie, 2009. "Agency Problems at Dual‐Class Companies," Journal of Finance, American Finance Association, vol. 64(4), pages 1697-1727, August.
    20. 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.
    21. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
    22. David S. Lee & Alexandre Mas, 2012. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961--1999," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 333-378.
    23. Ishii, Joy & Xuan, Yuhai, 2014. "Acquirer-target social ties and merger outcomes," Journal of Financial Economics, Elsevier, vol. 112(3), pages 344-363.
    24. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March.
    25. Piero Morosini & Scott Shane & Harbir Singh, 1998. "National Cultural Distance and Cross-Border Acquisition Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 137-158, March.
    26. Gregory Jackson & Richard Deeg, 2008. "Comparing capitalisms: understanding institutional diversity and its implications for international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(4), pages 540-561, June.
    27. Stephen G. Bronars & Donald R. Deere, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 231-254.
    28. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2012. "When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As," Journal of Finance, American Finance Association, vol. 67(1), pages 271-312, February.
    29. 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.
    30. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    31. Dessaint, Olivier & Golubov, Andrey & Volpin, Paolo, 2017. "Employment protection and takeovers," Journal of Financial Economics, Elsevier, vol. 125(2), pages 369-388.
    32. Daniel Bradley & Incheol Kim & Xuan Tian, 2017. "Do Unions Affect Innovation?," Management Science, INFORMS, vol. 63(7), pages 2251-2271, July.
    33. Gregory Jackson & Richard Deeg, 2019. "Comparing capitalisms and taking institutional context seriously," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(1), pages 4-19, February.
    34. 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.
    35. Michael A. Witt & Gregory Jackson, 2016. "Varieties of Capitalism and institutional comparative advantage: A test and reinterpretation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(7), pages 778-806, September.
    36. 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.
    37. Constatinos C Markides & Christopher D Ittner, 1994. "Shareholder Benefits from Corporate International Diversification: Evidence from U.S. International Acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(2), pages 343-366, June.
    38. Lin, Chen & Schmid, Thomas & Xuan, Yuhai, 2018. "Employee representation and financial leverage," Journal of Financial Economics, Elsevier, vol. 127(2), pages 303-324.
    39. Azizjon Alimov, 2015. "Labor market regulations and cross-border mergers and acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 46(8), pages 984-1009, October.
    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. Xiao, Shufeng & Tian, Xiaocong, 2023. "Performance feedback and location choice of foreign direct investment," International Business Review, Elsevier, vol. 32(4).
    2. Ye, Silin & Zhou, Jing & Jiang, Yunwen & Liu, Xiaming, 2023. "Managers as the bridge: How cultural friction influences the integration of cross-border mergers and acquisitions," International Business Review, Elsevier, vol. 32(4).
    3. Bai, Min & Ho, Ly & Lu, Yue & Qin, Yafeng, 2023. "Labor protection and dynamic leverage adjustments in the OECD countries," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 502-527.
    4. Hossain, Mohammed Sawkat, 2021. "Merger & Acquisitions (M&As) as an important strategic vehicle in business: Thematic areas, research avenues & possible suggestions," Journal of Economics and Business, Elsevier, vol. 116(C).
    5. Aktas, Nihat & Baros, Aleksandra & Croci, Ettore, 2022. "Corporate divestitures around acquisitions," Journal of Corporate Finance, Elsevier, vol. 73(C).
    6. Ahsan, Faisal Mohammad & Popli, Manish & Kumar, Vikas, 2024. "Formal institutions and cross-border mergers and acquisitions: A systematic literature review and research agenda," International Business Review, Elsevier, vol. 33(5).
    7. Nico Dewaelheyns & Cynthia Van Hulle & Yannick Van Landuyt & Mathias Verreydt, 2021. "Labor Contracts, Wages and SME Failure," Sustainability, MDPI, vol. 13(14), pages 1-15, July.
    8. Christian Fieberg & Kerstin Lopatta & Thomas Tammen & Sebastian A. Tideman, 2021. "Political affinity and investors' response to the acquisition premium in cross‐border M&A transactions — A moderation analysis," Strategic Management Journal, Wiley Blackwell, vol. 42(13), pages 2477-2492, December.
    9. Su, Zhongfeng & Li, Jiatao & Wei, Shihao & Wu, Zhan, 2024. "Effect of inward foreign direct investment on entrepreneurship productivity in emerging markets," Journal of International Management, Elsevier, vol. 30(1).
    10. Adra, Samer & Hamadi, Malika & Yuan, Jiayi, 2023. "Top-tier advisors and the market feedback dynamics in cross-border M&As," International Review of Financial Analysis, Elsevier, vol. 86(C).
    11. Gada, Viswa Prasad & Goyal, Lakshmi & Popli, Manish, 2021. "Earnouts in M&A deal structuring: The impact of CEO prevention focus," Journal of International Management, Elsevier, vol. 27(1).
    12. Boubakri, Narjess & Cosset, Jean-Claude & Mishra, Dev & Somé, Hyacinthe Y., 2023. "The value of risk-taking in mergers: Role of ownership and country legal institutions," Journal of Empirical Finance, Elsevier, vol. 70(C), pages 427-444.
    13. Wang, Yichen & Hu, Jun & Chen, Jia, 2023. "Does Fintech facilitate cross-border M&As? Evidence from Chinese A-share listed firms," International Review of Financial Analysis, Elsevier, vol. 85(C).
    14. Xu, Kai & Hitt, Michael A. & Brock, David & Pisano, Vincenzo & Huang, Lulu S.R., 2021. "Country institutional environments and international strategy: A review and analysis of the research," Journal of International Management, Elsevier, vol. 27(1).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ross Levine & Chen Lin & Beibei Shen, 2015. "Cross-border Acquisitions and Labor Regulations," NBER Working Papers 21245, National Bureau of Economic Research, Inc.
    2. Leonidas G Barbopoulos & Jo Danbolt & Dimitris Alexakis, 2018. "The role of earnout financing on the valuation effects of global diversification," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(5), pages 523-551, July.
    3. Dessaint, Olivier & Golubov, Andrey & Volpin, Paolo, 2017. "Employment protection and takeovers," Journal of Financial Economics, Elsevier, vol. 125(2), pages 369-388.
    4. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    5. Chen, I-Ju & Chen, Yan-Shing & Chen, Sheng-Syan, 2018. "The strategic choice of payment method in corporate acquisitions: The role of collective bargaining against unionized workers," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 408-422.
    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. Ahsan, Faisal Mohammad & Popli, Manish & Kumar, Vikas, 2024. "Formal institutions and cross-border mergers and acquisitions: A systematic literature review and research agenda," International Business Review, Elsevier, vol. 33(5).
    8. 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).
    9. Karpuz, Ahmet & Kim, Kirak & Ozkan, Neslihan, 2020. "Employment protection laws and corporate cash holdings," Journal of Banking & Finance, Elsevier, vol. 111(C).
    10. Ghaly, Mohamed & Kostakis, Alexandros & Stathopoulos, Konstantinos, 2021. "The (non-) effect of labor unionization on firm risk: Evidence from the options market," Journal of Corporate Finance, Elsevier, vol. 66(C).
    11. Liang, Hao & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Cross-border acquisitions and employment policies," Journal of Corporate Finance, Elsevier, vol. 62(C).
    12. Yang Zhang, 2018. "Corporate Governance Effects on Risk Management and Shareholder Wealth: The Case of Mergers and Acquisitions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4-2018, January-A.
    13. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    14. Chowdhury, Rajib & Doukas, John A. & Park, Jong Chool, 2021. "Stakeholder orientation and the value of cash holdings: Evidence from a natural experiment," Journal of Corporate Finance, Elsevier, vol. 69(C).
    15. Li, Jiatao & Li, Peixin & Wang, Baolian, 2016. "Do cross-border acquisitions create value? Evidence from overseas acquisitions by Chinese firms," International Business Review, Elsevier, vol. 25(2), pages 471-483.
    16. Yanga, Shuying & Kim, Seongcheol, 2017. "Do Cross-border M&As by Chinese Media and Entertainment Firms Create Value? Evidence from US-targeted and Korea-targeted Deals," 14th ITS Asia-Pacific Regional Conference, Kyoto 2017: Mapping ICT into Transformation for the Next Information Society 168549, International Telecommunications Society (ITS).
    17. Leon Zolotoy & Don O’Sullivan & Keke Song, 2021. "The Role of Ethical Standards in the Relationship Between Religious Social Norms and M&A Announcement Returns," Journal of Business Ethics, Springer, vol. 170(4), pages 721-742, May.
    18. 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.
    19. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    20. Dang, Viet A. & De Cesari, Amedeo & Phan, Hieu V., 2021. "Employment protection and share repurchases: Evidence from wrongful discharge laws," Journal of Corporate Finance, Elsevier, vol. 69(C).

    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:pal:jintbs:v:51:y:2020:i:2:d:10.1057_s41267-019-00281-1. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.