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Post-merger layoffs moderated, corporate takeovers cut when labour protections strengthened, Rotman research finds

December 1, 2016

Toron­to, ON – An exam­i­na­tion of takeover activ­i­ty in OECD coun­tries has found that increased job pro­tec­tions have a major impact on cor­po­rate merg­ers and acqui­si­tions, dri­ving down activ­i­ty while cut­ting the syn­er­gy gains asso­ci­at­ed with it.

The effect is so sig­nif­i­cant that researchers have con­clud­ed that the poten­tial for labour restruc­tur­ing is one of the key rea­son behind takeover bids.

The study from the Uni­ver­si­ty of Toron­to’s Rot­man School of Man­age­ment found an almost 15 per cent drop in the num­ber of takeover deals and a 25 per cent drop in deal vol­ume in response to major employ­ment pro­tec­tion reforms that had been passed dur­ing the study peri­od. When takeovers did hap­pen, syn­er­gy gains from con­sol­i­da­tion were cut by half.

The paper, forth­com­ing in Jour­nal of Finan­cial Eco­nom­ics, marks the first sys­tem­at­ic empir­i­cal evi­dence doc­u­ment­ing the link between labour restruc­tur­ing and takeovers around the world.

“Every­thing starts from the poten­tial for elim­i­nat­ing over­lap,” said Andrey Gol­ubov, a Rot­man assis­tant pro­fes­sor of finance and one of three study co-authors. “If the poten­tial is not there, syn­er­gies are low­er and deals don’t hap­pen.”

Increased labour pro­tec­tions were found to mod­er­ate post-merg­er lay­offs, result­ing in 7.4 per cent more jobs left behind after a merg­er than in places where no such strength­en­ing had tak­en place. For an aver­age com­bined firm work­force of 31,500 employ­ees, that rep­re­sents 2,200 jobs.

While the val­ue of takeover deals dropped in a height­ened job pro­tec­tion envi­ron­ment, the researchers found that the price bid­ders paid did not drop as much as the expect­ed gains from the merg­er, sug­gest­ing that both bid­der and tar­get firm share­hold­ers bear the cost of increased labour pro­tec­tion.

The study ana­lyzed near­ly 46,000 takeover deals in 21 coun­tries between 1985 and 2007. Researchers com­pared OECD and anoth­er study’s records on labour pro­tec­tion reforms passed dur­ing that peri­od with data col­lect­ed by Thom­son Reuters about takeover activ­i­ty dur­ing the same time. The data cov­ered the world’s most active takeover mar­kets, includ­ing coun­tries such as the Unit­ed States, Unit­ed King­dom, Cana­da and Japan. Researchers con­trolled for such dif­fer­ences as the lev­el of eco­nom­ic devel­op­ment and eco­nom­ic growth, cor­po­rate tax rates, polit­i­cal ori­en­ta­tion of gov­ern­ments and union pow­er.

As an exam­ple of how nation­al labour reg­u­la­tion can shape merg­er activ­i­ty, the U.S. and New Zealand were among coun­tries found with high takeover activ­i­ty and com­par­a­tive­ly low labour pro­tec­tions. In con­trast, Italy and Spain were among those coun­tries that saw high­er lev­els job pro­tec­tion with rel­a­tive­ly lim­it­ed merg­er activ­i­ty.

The study was co-authored with Olivi­er Des­saint, an assis­tant pro­fes­sor of finance at the Rot­man School and Pro­fes­sor Pao­lo Volpin of Cass Busi­ness School at City Uni­ver­si­ty Lon­don.

For the lat­est think­ing on busi­ness, man­age­ment and eco­nom­ics from the Rot­man School of Man­age­ment, vis­it

The Rot­man School of Man­age­ment is locat­ed in the heart of Canada’s com­mer­cial and cul­tur­al cap­i­tal and is part of the Uni­ver­si­ty of Toron­to, one of the world’s top 20 research uni­ver­si­ties. The Rot­man School fos­ters a new way to think that enables our grad­u­ates to tack­le today’s glob­al busi­ness and soci­etal chal­lenges. For more infor­ma­tion, vis­it


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Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
Tel: 416.946.3818

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