Worker–Plant Matching and Ownership Change*

• DOI: http://doi.org/10.1111/sjoe.12376
• Author: Ragnhild Balsvik,Stefanie A. Haller
• Date: 01 October 2020
• Published date: 01 October 2020

Scand. J. of Economics 122(4), 1286–1314, 2020

DOI: 10.1111/sjoe.12376

Worker–Plant Matching and Ownership

Change*

Ragnhild Balsvik

Norwegian School of Economics, NO-5045 Bergen, Norway

ragnhild.balsvik@nhh.no

Stefanie A. Haller

University College Dublin, Dublin 4, Ireland

stefanie.haller@ucd.ie

Abstract

Is a change in ownership an opportunity for the new owners to make systematic changes to the

workforce of the acquired plant? Using matched employer–employee data, we document changes

to the workforce along observable and unobservable dimensions of worker quality around the

time of ownership change. We observe above-average separations of workers around domestic

acquisitions. This is associated with a decline in unobserved workerquality in the plant. Foreign

acquisitions are not associated with above-averageworker turnover; instead, new foreign owners

share rents with the high-skilled workers who are already in the plant before the acquisition.

Keywords: acquisitions; multinational firms; unobserved fixed effects; worker reallocation

JEL classification:F23; F66; J20

I. Introduction

From the point of view of affected workers, takeovers – and, in particular,

takeovers by new foreign owners – are often associated with fears over job

losses.1Taking a different perspective, much of the literature on mergers

and acquisitions (M&A) views M&A as a way to improve the allocation of

*This work was partially supported by the Research Council of Norway through its Centres of

Excellence Scheme, FAIR project No 262675. We thank three referees, Francesco Devicienti,

Matteo Picchio, and seminar participants in Ancona, Bergen, Berlin, Dublin, Leuven, Louvain-

la-Neuve, and Stockholm for valuablecomments. All remaining errors are our own responsibility.

1Indeed, governments have intervened with the aim of preserving jobs in some

of the larger foreign takeovers in recent years; consider, for example, the French

government in the bid of General Electric for Alstom (see http://fortune.com/2014/

11/05/France-gives-green-light- to-ges-alstom- acquisition/) and the UK government in the

Pfizer bid for Astra Zeneca (see http://www.bloomberg.com/news/articles/2014-05-07/

pfizer-has-cameron- channeling-hollande-amid-job- fears). The UK government intervened

despite the absence of provisions for government intervention in the case of foreign takeovers

in British law.Countries such the United States, Canada, France, and Australia have direct legal

mechanisms to halt foreign acquisitions.

C

The editors of The Scandinavian Journal of Economics 2019.

R. Balsvik and S. A. Haller 1287

resources towards more efficient firms and owners by enhancing the match

between the firm and its plants (Lucas, 1978; Lichtenberg and Siegel, 1987;

Maksimovic and Phillips, 2002; Jovanovic and Rousseau, 2008; Maksimovic

et al., 2011). For example, Lichtenberg and Siegel (1987) argue that below-

average productivity of a plant is a signal of a bad match and an indicator

for the firm to sell the plant.2Siegel and Simons (2010) take this plant-

to-firm matching perspective to the match between workers and plants,

and they argue that new owners will recognize the opportunity to improve

the sorting and matching of workers across plants, by separating from

unproductive workers and by hiring new workers who better complement

the technology of the firm. New owners might bring in new technology,

new management practices, or new networks of suppliers and customers;

and they might want to adjust the workforce (e.g., by skill upgrading)

to complement these changes.3The OLI paradigm of Dunning (1981),

whereby multinational firms need to have a specific advantage (ownership,

location, or internalization, hence OLI) to invest abroad, implies that such

changes might be more likely in the presence of new foreign owners. Hence,

we distinguish between foreign and domestic acquisitions in our analysis.

In this paper, we explore the adjustments to the size and composition

of the workforce that occur around the time of ownership change, as such

events are often assumed to go together with (typically unobserved) changes

to technology, management practices, or the networks of the plant. We

use comprehensive census and register data for Norwegian manufacturing

plants and their employees for the period from 1996 to 2007, in order to

answer the following questions. Is a change in ownership associated with

above-average worker turnover through excess separations and new hires?

Does worker turnover result in systematic changes in the characteristics

of workers who are employed by the plant after the change in ownership

relative to those employed before the change in ownership? As well as

selecting workers based on observable worker characteristics, plants are

likely to screen workers along dimensions that are unobservable in research

data sets. Our main contribution to the literature on ownership change is

to provide a first assessment of trends in both observable and unobservable

measures of the workforce around acquisitions.

In addition to hiring and separations, new owners might also (re)train

the existing workforce and reallocate workers who stay to tasks that are a

better match to each worker (Becker et al., 2018). Such changes are not

observable in our data, but they can result in higher employee satisfaction,

2Their argument for firm and plant matching in M&A is based on the theory of job turnover in

Jovanovic(1979).

3Bloom and Van Reenen (2011) find that good management practice is strongly correlated with

firm productivity.

C

The editors of The Scandinavian Journal of Economics 2019.