Target Employee-Shareholder Conflicts of Interest, Unemployment Insurance and Takeover Outcomes

We examine the extent that unemployment insurance (UI) reduces employee-shareholder conflicts of interest in target firms and affects takeover outcomes. A 10% increase in UI level raises takeover likelihoods by 15-26% over the unconditional mean. This rise is only partially explained by unionized employees. Board stakeholder orientation is another important channel. Adoption of directors’ duties laws raises a board’s stakeholder orientation and UI’s influence on takeover likelihoods. Higher target state UI benefits also raise deal synergies and gains to acquirer and target shareholders. Our evidence suggests that UI improves takeover market efficiency and UI policy should recognize this benefit.