We examine how labor power affects a firm’s takeover exposure and merger gains. Using a regression discontinuity design that relies on “locally” exogenous variation in labor power generated by close-call union elections, we find that increased labor power significantly reduces a firm’s takeover exposure, reduces target offer premium and announcement returns, and prolongs deal completion duration. The results are stronger for more powerful and conflict-provoking unions. Bidders of unionized targets are experienced, are tough negotiators, and face fewer union threats by themselves. Our paper provides new insights into the real effects of shareholder-employee conflict regarding the market for corporate control. (JEL G34, G30, J51) Received: February 9, 2019; editorial decision January 15, 2020 by Editor Isil Erel.

Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000–2014, we find that firms with financial institutions’ loan-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are oversecured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to address potential endogeneity concerns. Firms with simultaneous holdings experience higher stock returns. The evidence suggests that mitigating shareholder-creditor conflict results in cost-effective resolutions of financial distress.