Cross-border acquisitions and employment policies

Using novel firm-level data on employment quality in an international sample of M&A deals, this paper investigates the cost-benefit trade-off faced by acquirers when providing generous employment policies. We find that shareholders react more positively to deal announcements by acquirers providing generous employee incentives when the deal is domestic, but negatively when the deal is cross-border. These effects are primarily driven by the provision of monetary incentives and are strongest for firms in skilled industries. We argue that generous employment policies increase synergy gains and reduce labor adjustment costs in a domestic takeover. In cross-border deals, however, costs associated with managing employee policies across borders and lack of opportunities for eliminating work duplication negatively affect acquirer returns. Nevertheless, we find that country-specific acquisition experience can mitigate these negative effects. Our results cannot be explained by country-level labor regulations or by target-level employment policies.