Cross-Border Acquisitions and Labor Regulations

by Ross Levine, Chen Lin and Beibei Shen

For draft of the paper, see here.

Do labor regulations influence the reaction of stock markets and firm profitability to cross-border acquisitions? Levine, Lin and Shen discover that acquiring firms enjoy smaller abnormal stock returns and profits when target firms 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 firm is in a labor-intensive or high labor-volatility industry. Consistent with labor regulations shaping the success of cross-border deals, Levine, Lin and Shen find that firms make fewer and smaller cross-border acquisitions into countries with strong labor regulations.

See poster.