Corporate M&As and labor market concentration: Efficiency gains or power grabs?

Corporate M&As and labor market concentration: Efficiency gains or power grabs?

 

David C. Cicero

Harbert College of Business, Auburn University

Mo Shen

Harbert College of Business, Auburn University

Jaideep Shenoy

University of Connecticut

 

Abstract

Mergers that increase labor market concentration can enhance firms’ labor market power or promote efficiency through post-merger labor reorganization. Using establishment-level employment data, we create a novel measure of the change in labor market concentration due to a merger. We find that the deal-related increase in this measure predicts merger firm pair formation. Furthermore, the merger-related increase in labor market concentration is positively related to the combined returns to merging firms, negatively related to the returns to rival firms, and positively related to the returns to supplier and customer firms. We also document a decrease in total employment and an increase in IT spending in establishments of merging firms that experience a greater increase in labor market concentration. Overall, our evidence suggests that firms with overlapping labor markets merge to benefit from labor efficiencies rather than from the enhancement of labor market power.