Abstract
Although there is evidence that mergers and acquisitions can improve labour productivity, it is not clear how extensive this is or how it is achieved. We empirically investigate these issues, focusing specifically on the role of workforce rationalisation via post-merger restructuring activities, such as redundancies and divestments. Our results show that acquirers improve labour productivity relative to the non-acquiring firms' performance. Our evidence also indicates that post-merger workforce growth is more likely associated with labour productivity improvement, while workforce reductions do not lead to post-merger performance improvement. This suggests that labour cost savings through merger-related workforce reductions negatively impact firm performance. The results are consistent with the view that takeovers of large firms can play an important disciplining role, but they also show that many takeovers do not lead to significant improvements in relative productivity.