The issue of whether mergers and acquisitions lead to economic efficiency is divisive, as is confirmed by mixed empirical evidence. There is no general agreement on the dominating motive for such transactions. Consequently, the sources of takeover gains are unknown. Synergy realisation and management disciplining have been suggested as the main driving forces of efficiency improvements. However, it is not well understood how such factors may create value. One suggestion is that better labour management and more efficient labour usage reduces demand for labour during post-takeover years (Conyon et al., 2002). Profit maximising managers may undertake workforce reductions to realise the synergetic and better labour management gains created by mergers. However, any workforce reduction should be undertaken on the basis of the level of decline in labour demand. This implies that decline in labour demand should be steeper in mergers that involve employee layoffs than in mergers that do not
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