This study empirically examines a hypothesis that, post-mergers and acquisitions (M&A) integration, reorganizations and restructurings become difficult when employees of target firms are strongly protected by labor law and regulations in the target countries, affecting both selection of target firms and value creation from the acquisitions. Consistent with the hypothesis, our empirical results show that when employees in the target countries enjoy a strong legal protection, the stock return at the time of deal announcement and the operating performance of the acquirers in the post-acquisition period worsens. The results are robust even when different kinds of indexes of employment protection are used and selection bias of target firms is considered.
