Hard Marriage with Heavy Burdens: Labor Unions as Takeover Deterrents *

We examine the causal effect of unionization on a firm’s takeover exposure and merger gains. To establish causality, we use a regression discontinuity design that relies on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Barely passing a union election leads to a significant reduction in a firm’s probability of receiving takeover bids. Conditional on receiving a takeover bid, barely unionized targets enjoy a lower announcement return, receive a lower offer premium, and experience longer bid duration. The negative effect of unions on targets’ takeover exposure and merger gains is more pronounced when the mergers are horizontal, the firms have large unions, and the unions locate in states without right-to-work laws or states with more union-friendly successor statutes. Bidders of unionized targets seem to have more experience in making merger deals, possess a higher bargaining power, and face less union threat by themselves. Our paper provides new insights into the real effects of unionization regarding the market for corporate control.