Do managers proactively restructure firm employment when they face with the threat of takeover? Using a matched global sample with the staggered adoption of M&A laws, I find a significant decrease in employment after the implementation of M&A laws. Furthermore, this study finds that these layoffs contribute to an enhancement in firm valuation following the enactment of M&A laws. Cross-sectional analyses show that this effect is particularly pronounced in firms with severe free cash flow problems and in countries with weak shareholder protection. These results are consistent with the idea that the threat of takeover serves as an external governance device, motivating managers to reduce inefficient employment. Additional findings show that employment protection tend to undermine the effects of the threat of takeover on employment.

This paper investigates how exposure to ESG capital flows in financial markets shapes M&A matching. Using a firm-level measure of ESG fund flow exposure, I find that acquirers merge with targets possessing higher ESG flow exposure than themselves. To identify the underlying motive, I test three hypotheses: cost of capital, signaling, and greenwashing. Post-merger results show no significant increases in ESG ownership, external financing, or ESG ratings. These findings provide support for greenwashing, rejecting the cost of capital and signaling views. The effect is particularly pronounced among underperforming managers. This suggests the possibility that they utilize ESG-related M&As as symbolic window-dressing to appease stakeholders and keep their positions.