Getting to 'Yes' When Acquiring Firms in Human Capital Intensive Industries: Medium of Exchange, Diversification Strategy, and Impasse

Abstract:     
Human capital often cannot be acquired in efficient factor markets due to asymmetric information or bundling with other assets. Accordingly, many acquisitions take place in human capital intensive industries. However, such transactions may be more prone to impasse since asymmetric information is also a dilemma for buyers. This study (n=714) explores the impact of target industry human capital intensity on the probability of reaching an agreement. Such transactions were found to have a higher probability of closing unless: 1) buyers fail to offer contingent payment; or 2) buyers are pursuing related diversification. These findings have implications for diversification theory and resource-based theory.

JEL Classifications: D82, G34

Working Paper Series