Corporate Takeovers and Labor Restructuring

Abstract

I examine the impact of M&As on employment dynamics and the composition of human capital in target firms. Using detailed employer-employee administrative data linked with hand-collected information on M&A activity in Brazil, I find that M&As are associated with a significant decline in employment, primarily through an increase in involuntary separations and a decline in hirings. This employment decline reflects efficiency-seeking restructuring. Target firms increase the share of high-skill and non-routine employees, while reducing costs through efficient consolidation and elimination of occupational overlap. The primary mechanism that explains these shifts is the adoption of innovation-intensive practices and investment in IT, particularly by acquirers that have the knowledge and ability to do so. Finally, post-merger compositional changes lead to an increase in wages and within-firm wage inequality.