Hostile Takeovers and Expropriation of Extramarginal Wages: A Test
NBER Working Paper No. 4101
We construct a prediction model for testing the hypothesis that firms with employees earning extramarginal wages--perhaps owing to long-term implicit contracts-were more likely to experience hostile tender offers from 1979-1989. Firms on the Compustat (active) file in 1979 comprise the domain from which targets were identified. The 1980 Census of Population is used to estimate wage equations by two-digit (SIC) industry and extract both industry wage premia as well as age-earnings profiles and age distributions of employees by industry. Firm-level estimates of employee characteristics are then constructed using the Compustat breakdown of firm sales by industry segment. Finally, event probabilities are estimated using logit and multinomial logit models. Variables related to proxies for the magnitude of extramarginal wages payments, plus other firm characteristics such as the extent of diversification across industries, are found to raise the likelihood of being a hostile takeover target, relative to other corporate control events.