Chinese University of Hong Kong
Institutional Affiliation: Chinese University of Hong Kong
NBER Working Papers and Publications
|June 2015||Cross-border Acquisitions and Labor Regulations|
with Ross Levine, Chen Lin: w21245
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.