Unemployment Insurance and Takeovers* Lixiong Guo† University of Alabama Jing Kong‡ Michigan State University Ronald W. Masulis§ University of New South Wales December 11, 2019 Abstract We examine whether unemployment insurance (UI) mitigates shareholder-employee conflicts of interest and improves takeover market efficiency. Exploiting within state changes in UI benefits, we find that increased target state UI benefits raise acquisition likelihoods, expected deal synergies, and gains to both acquirer and target shareholders. UI effects on acquisition likelihood are stronger in highly unionized industries, in firms with concentrated employee ownership, and in firms with employee friendly boards. The passage of directors’ duties laws increases the UI effect on acquisition likelihood. Lastly, increased acquirer state UI benefits raise acquirer returns and likelihood of acquirers making within-industry acquisitions. JEL Classification: G32, G34, G38, J65 Keywords: Unemployment Insurance, Labor, Takeovers, Mergers and Acquisitions, Synergy, Stakeholders, Unemployment Risk. * We are grateful to Shai Bernstein, Oleg Chuprinin, Andrey Golubov (discussant), Vidhan Goyal, Chang-Mo Kang, Hao Liang (discussant), Shawn Mobbs, Hernan Ortiz-Molina (discussant), Peter Swan, Li Yang, Xianming Zhou, and seminar participants at UNSW Sydney, Deakin University, University of Alabama, and conference participants at the 2017 NFA Conference in Halifax, 2017 FMA Conference in Boston, 2017 AsianFA Conference in Seoul, and 2017 FIRN Corporate Conference in Adelaide for helpful discussions and valuable comments. All errors are our own. † Lixiong Guo is with the University of Alabama. Address: Culverhouse College of Business, University of Alabama, 232 Alston Hall, 361 Stadium Drive, Tuscaloosa, Alabama, 35487-0224. Electronic Mail:
[email protected]. ‡ Jing Kong is with the Michigan State University.