Working Paper: CEPR ID: DP2021
Authors: Gilles Chemla
Abstract: This paper analyses the impact of takeover threats on long-term industrial relations. It argues that takeover threats dramatically affect the way in which an increase in workers' bargaining power affects (under)investment. Without loss of generality, we focus on the particular example of the economic consequences of union power in wage negotiations. In the absence of takeovers, the higher workers' bargaining power, the higher their wage flexibility and effort and the firm's capacity to invest, but the lower the firm's incentive to invest. Under the threat of a takeover reducing their expected wages, the workers' effort and wage flexibility are restricted and decrease with the workers' initial bargaining power. Various takeover defence mechanisms are compared.
Keywords: takeovers; investment; wage flexibility; bargaining; ESOPs
JEL Codes: D23; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Workers' bargaining power (J52) | Wage flexibility (J31) |
| Workers' bargaining power (J52) | Effort (D29) |
| Wage flexibility (J31) | Firm investment capacity (G31) |
| Effort (D29) | Firm investment capacity (G31) |
| Takeover threats (G34) | Wage flexibility (J31) |
| Takeover threats (G34) | Effort (D29) |
| Takeover threats (G34) | Firm investment capacity (G31) |
| Unionization (J51) | Firm investment in takeover targets (G34) |
| Declining union power (J51) | Market for corporate control (G34) |