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Do hostile takeovers reduce extramarginal wage payments?

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  • Jagadeesh Gokhale
  • Erica L. Groshen
  • David Neumark

Abstract

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.

Suggested Citation

  • Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1992. "Do hostile takeovers reduce extramarginal wage payments?," Working Papers (Old Series) 9215, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:9215
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    More about this item

    Keywords

    Consolidation and merger of corporations; Wages;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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