Union Rents as a Source of Takeover Gains among Target Shareholders

Abstract

This paper tests the hypothesis that the substantial gains enjoyed by shareholders in target firms during the corporate acquisition boom of the 1980s reflected, in part, shareholders' recouping of the value of “rents” (in the form of wage premiums, higher fringe benefits, and constraints on managerial authority) held by unionized labor. Analyzing data on the merger and acquisition experience of nearly 300 large publicly traded target firms during the period 1982–86, the author finds, consistent with that hypothesis, that shareholders' average returns from takeover activity were higher in unionized target firms (41%) than in nonunion target firms (35%). For unionized workers, these effects are equivalent to an annualized employee “loss” approaching 8% of annual earnings, or 50% of the wage premium conventionally associated with union coverage.