Do union wealth concessions explain takeover premiums?: The evidence on contract wages

Abstract

This paper investigates whether union wealth concessions caused by changes in real wage growth following takeovers explain target-firm share-price premiums. Point estimates imply that union wealth changes in the six years following the acquisition account for 1% to 2% of shareholder premiums. This figure rises to 5% over 18 years. For hostile takeovers, union wealth increases by roughly 3% and 10% of shareholder gains over 6- and 18-year periods. The 95% confidence interval for wage changes implies that unions may lose up to a quarter, or gain up to a fifth, of what target shareholders gain.