Are Cross-Border Acquisitions Enemy of Labor? An Examination of Employment and Productivity Effects

Abstract

We examine the employment, efficiency and productivity effects of cross-border acquisitions using a large sample of targets of cross-border and domestic acquisitions. We find that targets of cross-border acquisitions reduce employment levels more than targets of domestic acquisitions after the acquisition; however, the cross-border targets increase wages more than domestic targets, and this resulted in increased post-acquisition productivity among cross-border targets. After accounting for industry-wide influences, we observe that although targets of cross-border acquisitions were less productive than those of domestic acquisitions before the takeover, their productivity levels improved significantly after the acquisition. In addition, cross-border targets become more efficient than their counterparts acquired by domestic bidders. At the macro level over the long run, cross-border acquisitions are associated with improvements in aggregate labor conditions (i.e., higher wages, lower levels of unemployment, and higher labor productivity). At the same time, firms targeted in cross-border acquisitions have a greater impact on GDP than those targeted in domestic acquisitions. This suggests that cross-border takeovers spur a reallocation of labor that increases aggregate productivity and GDP. This significant contribution is sometimes overlooked in the discourse on the benefits of cross-border acquisitions to the host country.