The consequences of private equity acquisitions for employees: new evidence on the impact on wages,employment and productivity

There is growing controversy on the HR consequences of private equity acquisitions, especially when the existing management team is replaced. Much of the debate thus far has centred on the use of limited panels of case studies and industry surveys. This article, in contrast, uses both in‐depth interviews with relevant stakeholders and objective company data to compare firms subject to private equity acquisitions against a control group of non‐acquired firms. Our interviews provide insights into key issues that are investigated in the subsequent empirical analysis. Our core findings are that firms subject to a specific type of private equity acquisition – institutional buyouts – are associated with job losses, lower wages and lower productivity. This evidence is consistent with the notion that this type of private equity acquisition has negative employment consequences without any corresponding improvement in productivity.     

Sovereign wealth funds,productivity and people: The impact of Norwegian Government Pension Fund‐Global investments in the United Kingdom

Sovereign wealth funds have an increasing presence in the global financial ecosystem, principally through their investments in equities, which, in turn, may influence HRM. This study examines the influence of the world's largest sovereign wealth fund, the Norwegian Government Pension Fund‐Global (NGPF‐G), on employment in its U.K. investee firms. We find that firms with NGPF‐G investment are significantly less likely to reduce their demand for labour, more specifically in the immediate aftermath of the 2008 financial crisis. When a drop in the demand for labour does occur, it is less extreme when compared to similar organisations without a NGPF‐G shareholding, and this is evident even in the case of relatively small NGPF‐G investments. These findings are in line with the fund's objective of promoting corporate sustainability and Norwegian values. We draw out the key implications of our findings for HR practice.     

Insider Trading and Financing Constraints

Insider trading may alleviate financing constraints by conveying value‐relevant information to the market (the information effect) or may exacerbate financing constraints by impairing market liquidity and distorting insiders’ incentives to disclose value‐relevant information (the confidence effect). We examine the significance of these two contrasting effects by investigating the link between insider trading and financing constraints as measured by the investment‐cash flow sensitivity. We find that, overall insider trading exacerbates financing constraints; however the information effect dominates the confidence effect for insider purchases. Only trades by executive directors are significantly related to financing constraints.     

Price,volume and spread effects associated with the expiry of lock-in agreements: Evidence from the Hong Kong IPO market

We examine the price, volume and bid–ask spread reactions to lock-in expiries in Hong Kong IPOs. We show that the lock-in expiry causes an increase in both trading volume and bid–ask spread, but no significant change in the share price. We attribute the absence of a price reaction to the fact that most of the Hong Kong IPO firms are controlled by one or two non-institutional shareholders who choose not to sell their shares after the lock-in expiry. Another plausible reason for the absence of a price reaction may be the period studied by this paper which follows the publication of a number of studies on lock-in expiry. The publication of the anomaly may have arbitraged away any gains internationally. The absence of significant abnormal returns around the lock-in expiry confirms the semi-strong form of the efficient market hypothesis. Our results are consistent with the European evidence, but contradict the findings of most US studies. We show that the volume and spread increases are not caused by the sales by locked-in insiders around the lock-in expiry. The volume increase may be caused by the presence of undisclosed insider transactions around the lock-in expiry. This may well be the case, since the insider trading disclosure requirement does not apply to transactions that result in a change of less than one percentage point to an insider holding. Finally, we show that the wider spread is likely to be caused by market makers charging high information rent to protect themselves against potential trading with informed insiders.     

Disentangling the link between stock and accounting performance in acquisitions

We study the accounting and stock performance of 4547 US acquisitions during 1989 and 2008. We categorise acquisitions into four types based on the four possible combinations of positive or negative abnormal stock performance and abnormal accounting performance. First, we compare the bidder, bid and target characteristics across the four types of acquisitions. We find significant differences. Second, with the help of existing theories we explain these differences in bidder, bid and target characteristics by differences in the acquisition motives.     

Dividend policy of German firms: A panel data analysis of partial adjustment models

German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i) published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.     

Contractual corporate governance

Companies have the choice to deviate from their national corporate governance standards by opting into another system. They can do so via contractual devices – such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings – which enable them to choose their preferred level of investor protection and regulation. This paper reviews these three main contractual governance devices, their effect on value, and whether their adoption by firms induces a race to the bottom or a race to the top. Indeed, firms may opt for less shareholder-orientation or investor protection (shareholder-expropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).     

Earnings management around founder CEO reappointments and successions in family firms

This paper studies reappointment of a chief executive officer (CEO) and succession events in listed family firms with an incumbent family CEO. We explore whether family firms with a founder CEO are more likely to engage in earnings management preevent than other family firms. We find evidence of preevent upward earnings management for firms that reappoint their founder CEO but no for other family firms. These findings suggest that the costs and benefits from earnings management change around founder CEO reappointments in family firms. Investors, auditors, policymakers and regulators should be aware of the temptation of founder CEOs to inflate earnings preceding their reappointment.     

Trust,Owner Rights,Employee Rights and Firm Performance

This is a study of variations in trust relationships according to institutional setting. A wide body of comparative institutional literature within economics and finance engages with trust. However, as most of this literature uses macro‐level data and/or stylistic ideal types, it normally neglects intra‐firm trust. This paper redresses this lacuna by using both macro‐level data and comparative firm‐level evidence. We found that both country trust and firm trust increase firm performance, but that there is a trade‐off between the two as high levels of both reduce performance. Finally, both employee rights and investor rights are negatively correlated with country trust.