Do Employee Interests Affect Target Board Decisions About Acquisition Offers? Evidence from Changes in Unemployment Insurance.

This article investigates whether target firm boards of directors consider employee interests, specifically unemployment costs, when evaluating acquisition offers in mergers and acquisitions (M&As). Using exogenous variation from changes in U.S. state unemployment insurance (UI) benefit levels, the study finds that higher UI benefits—which reduce employees' unemployment costs—are associated with an increased likelihood of firms being acquired, particularly for firms with labor-intensive operations, low short-term institutional ownership, headquarters in less populated or high social capital counties, and boards with female independent directors. The adoption of state constituency statutes, which explicitly allow boards to consider stakeholder interests, strengthens this relationship, supporting the conclusion that many target boards weigh employee welfare in their decisions. Additionally, higher UI levels correlate with larger postacquisition layoffs, consistent with boards accepting deals involving greater workforce restructuring when unemployment costs are lower.