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Employee-Manager Alliances and Shareholder Returns from Acquisitions

  • Ronald W. Masulis, Cong Wang and Fei Xie


We examine the potential for management-worker alliances when employees have substantial voting rights, and how such alliances affect the balance of power between managers and shareholders. We find that substantial employee voting rights exacerbate the manager-shareholder conflicts. Specifically, they entrench incumbent managers and allow them to pursue value-destroying acquisitions by undercutting the disciplinary influence of the corporate control market. Importantly, employee support for managers is conditional on favorable treatment of employees. Our findings are consistent with Pagano and Volpin’s theory of worker-management alliances and highlight the potential risks associated with large employee voting power.


Corresponding author

*Masulis (corresponding author),, University of New South Wales, UNSW Business School, ECGI, and ABFER; Wang,, The Chinese University of Hong Kong, Shenzhen, School of Management and Economics; and Xie,, University of Delaware Lerner College of Business & Economics and ECGI.


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We are grateful for helpful comments from Rajesh Aggarwal, Daniel Bradley, Conrad Ciccotello, Fangjian Fu, Jarrad Harford, Feng Jiang, Paul Malatesta (the editor), Marco Pagano (the referee), Oliver Spalt, Paolo Volpin, and seminar or session participants at the 2014 CICF, the 2016 EFA annual meeting, the 2012 FIRS conference, Cass Business School, Chinese University of Hong Kong, Clemson University, George Mason University, Georgia State University, Lehigh University, SUNY–Buffalo, Shanghai University of Finance and Economics, University of New South Wales, University of North Carolina–Charlotte, University of South Florida, University of Western Ontario, and York University.



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