Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

Abstract

Cross-border mergers and domestic-firm wages: Integrating "spillover effects" and "bargaining effects" Article (Draft) Original Citation: Clougherty, Joseph A. and Gugler, Klaus and Sørgard, Lars and Szücs, Florian (2014) Cross-border mergers and domestic-firm wages: Integrating "spillover effects" and "bargaining effects". Journal of International Business Studies, 45. pp. 450-470. ISSN 0047-2506 This version is available at: http://epub.wu.ac.at/4129/ Available in ePub WU : April 2014 ePub WU , the institutional repository of the WU Vienna University of Economics and Business, is provided by the University Library and the IT-Services. The aim is to enable open access to the scholarly output of the WU.This document is an early version circulated as work in progress. There are minor differences between this and the publisher version which could however affect a citation.http://epub.wu.ac.at/ 1 Cross-border mergers and domestic-firm wages:Integrating 'spillover effects' and 'bargaining effects' Abstract Two literatures exist concerning cross-border merger activity's impact on domestic wages: one focusing on positive spillover-effects; the other focusing on negative bargaining-effects. Motivated by scarce theoretical scholarship spanning these literatures, we nest both mechanisms in a single conceptual framework. Considering the separate phenomena of inward and outward cross-border merger activity, our theoretical model generates three formal propositions: cross-border mergers can lead to wage increases via positive spillover-effects; and negative bargaining-effects are relatively more dominant when union market power is high, and when merging firms exhibit relatedness. Employing US firm-level panel data on wages combined with industry-level data on unionization and merger activity (covering 1989-2001), we find support for our propositions as inward and outward cross-border merger activity generate positive spillovers to wages, but are more likely to generate firm-level wage decreases when unionization rates are high and when cross-border merger activity is characterized as horizontal. Accordingly, future research on how cross-border mergers affect domestic wages should be mindful that both spillover and bargaining effects are at play, and that the degree of union marketpower and the relatedness of cross-border merger activity are critical in determining which effect dominates.

Creditor rights, claims enforcement, and bond performance in mergers and acquisitions

“…Our paper contributes to the growing literature on the economic impact and implications of cross-border M&As. The international business literature offers ample evidence on many aspects of these deals, including their impact on employee welfare (Clougherty et al, 2014), level of value creation (Aybar and Ficici, 2009;Aybar and Thanakijsombat, 2015;Doukas and Kan, 2006;Jory and Ngo, 2014;Lebedev et al, 2015;Li et al, 2016;Shimizu et al, 2004), and relationship with national culture (Ahern et al, 2015), legal systems (Jandik and Kali, 2009) and labor market regulations (Alimov, 2015). We add to this discussion by highlighting the substantial regulatory and jurisdictional complexities that cross-border M&As generate.…”

Foreign direct investment, unionised labour markets and welfare

“…In this paper, we consider green-field FDI and show the effects of labour unions on the incentive for FDI. There is a literature showing the effects of other types of foreign direct investments, such as cross-border mergers and joint ventures, on wages and employments (Lommerud et al, 2005, Belderbos and Zou, 2007and Clougherty et al, 2014. A natural extension of this paper will be to consider the effects of labour unions in the presence of different types of foreign direct investment, such as green-field investment and crossborder mergers.…”

Corporate pension plans and investment choices: Bargaining or conforming?

“…Firstly, although the impact of employees' bargaining power on corporate investment choice has been investigated theoretically, the empirical evidences are scant (Clougherty et al 2014). We find that higher DB plan coverage induces more diversifying acquisitions rather than nondiversifying acquisitions or capital expenditures.…”

“…The two variables control for unknown industry factors that drive the differences in cross-border and diversifying acquisitions across industries. Besides, Clougherty et al (2014) theoretically and empirically show that more cross-border mergers in a highly unionized industry, particularly those involve firms in same industry, result in lower wages for rival firms. Therefore, we include the variables in both the choice model and the models for changes in pension expense and operating performance.…”