Employee-Manager Alliances and Shareholder Returns from Acquisitions

We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, th...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2020-03, Vol.55 (2), p.473-516
Main Authors: Masulis, Ronald W, Wang, Cong, Xie, Fei
Format: Article
Language:English
Subjects:
Alliances
Balance of power
Cash flow
Corporate governance
Deferred compensation
Economics
Employee management relations
Employee stock ownership plans
Employees
Equity
ESOP
Layoffs
Management controls
Profit sharing plans
Quantitative analysis
Return on investment
Stockholders
Strikes
Voting rights
Workers
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Summary:We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, they entrench incumbent managers and allow them to pursue value-destroying acquisitions by undercutting the disciplinary influence of the corporate control market. Importantly, employee support for managers is conditional on favorable treatment of employees. Our findings are consistent with Pagano and Volpin’s theory of worker-management alliances and highlight the potential risks associated with large employee voting power.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109019000036