Working Paper: NBER ID: w21245
Authors: 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.
Keywords: cross-border acquisitions; labor regulations; stock market reaction; firm profitability
JEL Codes: F2; G34; G38; J6; J8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stronger labor protection regulations (J88) | smaller abnormal stock returns and profits (G17) |
| weaker labor regulations (J89) | higher CARs and ROAs (G32) |
| labor regulations (J88) | success of cross-border acquisitions (F23) |
| stronger labor regulations (J89) | less likely to engage in cross-border acquisitions (F23) |
| labor market flexibility (J48) | financial outcomes of cross-border mergers and acquisitions (G34) |