Time Zone Difference and Employee Coordination: Evidence from Mergers

I study the impact of time zone differences (TZDs) among firm segments on employee coordination in a mergers and acquisitions (M&A) setting. A model describing the synergy generated from real-time cooperation among employees suggests that TZDs impede employee coordination and reduce productivity. The model predicts negative market reactions to cross-time-zone M&A announcements. Using a sample of 3228 public M&A deals in the US, I find that the TZDs between acquirers and targets have a substantial negative effect on combined firm announcement returns: A one-hour TZD is associated with a decrease of 0.52-0.62% in the announcement return of the combined firm. Neither geographic distance nor cultural difference drives the negative effect. Consistent with the model predictions, the negative effect is stronger if the combining firms have high labor intensity or small employee numbers, or if they are similar in labor size or are in high-technology industries. I also find that, after cross-time-zone M&A, firms experience significant decline in operating performance and are more likely to conduct employee layoffs. Firms that conduct layoffs can recover their performance. Additional tests suggest that acquirers do not lower their offer price in cross-time-zone M&A and therefore, bear most of the costs caused by TZDs.