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How Should Employees Perceive Mergers and Acquisitions?

Katsuyuki Kubo
Professor, Faculty of Commerce, Waseda University

Corporate Restructuring and Employees

Since the latter half of the 1990s, Japanese companies have been proceeding with corporate restructuring, including mergers and acquisitions (M&As). I would like to examine here how employees are involved in this corporate restructuring.

People often point out that shareholder interest takes priority in corporate management in the U.S. and U.K., while the interest of stakeholders such as employees tends to take priority in Japan. Although employees do not have a direct say over management decisions, they may exert influence through the labor union, consultations between labor and management, and various in-company networks. There are cases where the mergers agreed between managers on both sides were cancelled due to opposition from employees. Moreover, even if the acquisition is completed, it would be difficult to benefit from the effect of mergers without the cooperation of employees with the new management. In light of these factors, we can see that it is a big issue as to how employees are involved in corporate restructuring.

Acquisitions by Investment Funds

Acquisitions by investment funds have attracted a great deal of social attention, especially the so-called activist hedge funds. There have been several studies on the impact of these acquisitions on corporate earnings. On the other hand, it is also important to examine the impact of corporate restructuring such as mergers and acquisitions, not only on shareholder values, but also on the interest of other stakeholders. The impact that such restructuring has had on the interest of employees is particularly important in Japan. The wider public has criticized some of the acquisitions as being executed solely to increase short-term shareholder value. Moreover, there have been cases that were identified as significantly infringing on the interest of employees. Looking at these much-discussed cases, some people may think corporate restructuring has the effect of deteriorating the interest of employees. Employees of the target company for acquisition by funds are opposed to the acquisition in many cases. This opposition can be attributed to fears that the interest of employees might be deteriorated as a result of the acquisition. In addition, employees might have the tendency to oppose not only acquisitions but also corporate restructuring in general. Also from this, it would be important to confirm empirically the impact that the restructuring of corporate structures might have on employees.

Empirical Analysis of Mergers and Employment

Here, I would like to present a study that I have conducted with Associate Professor Saito at Keio Business School. With the above issues in mind, we analyzed the impact of mergers on the interest of employees. We have analyzed here the changes in employee wages and employment for 111 merger cases among listed companies in Japan from 1990 to 2003. Several things have become clear. The first important finding is that employment has been lost in the merger process. Typically, a company with about 2,000 employees merged with one with about 1,000 employees, and the total number of employees has been reduced to around 2,100 in three years. In other words, the number of employees has been substantially reduced in several years around the time of the merger. While Japanese companies as a whole reduced employment during this period, the study shows that there have been a great many more reductions in merged companies than there have been in companies that have not merged. It should be noted, however, that they reduced employment over the period of several years. This is presumably because companies have reduced employment by the combination of voluntary retirement and attrition—such as reduced hiring of new recruits—to the extent possible.

Given that mergers reduce employment substantially, should we regard mergers as undesirable for employees? To examine that point, we have analyzed wages in addition to employment. The results show that wages have typically increased. Comparing the situations three years prior and three years after the merger, annual income has typically risen 10% over that period. In particular, the wage increase was large for related mergers. This is presumably because the direct effects of mergers are more easily obtained in related mergers by closing down redundant factories.

What can we conclude from this study? It is desirable also for employees to see corporate earnings increase as a result of corporate restructuring. With the growth of the company, chances are that there will be higher possibilities for promotions and wage increases. In addition, the reduction in employment due to mergers has been done mostly by voluntary retirement and attrition, and not by dismissal. Our results show that wages have increased, which in turn suggests the possibility that corporate restructuring is desirable for employees. Employees may not have to be overly concerned about corporate restructuring.

Katsuyuki Kubo, Takuji Saito (2012) "The effect of mergers on employment and wages: Evidence from Japan," Journal of the Japanese and International Economies, Volume 26, Issue 2, June 2012, Pages 263–284.

Katsuyuki Kubo
Professor, Faculty of Commerce, Waseda Universitys


Received his B.A. (1992) and M.A. (1994) in Economics from Keio University. Ph.D (2000) in Industrial Relations from The London School of Economics. Lecturer of Economics at the Institute for Economic Research at Hitotsubashi University and Associate Professor, School of Commerce, Waseda University before taking his current position in 2010. Major publications include: Corporate Governance: What is the Ideal for Change of Managers and Their Compensation [Koporeto Gabanansu: Keieisha no Kotai to Hoshu ha Doarubekika], Nikkei Publishing Inc.; and Human Resource Management Reform of Japanese Companies: Examination of Results-Oriented Practice based on Personnel Data [Nihon-kigyo no Jinji-kaikaku—Jinji Deta ni yoru Seika-shugi no Kensho], Toyo Keizai Inc.