The Human Factor in Acquisitions: Cross-Industry Labor Mobility and Corporate Diversification

Abstract

The benefits of internal labor markets are largest when they include industries that utilize similar worker skills, facilitating cross-industry worker reallocation and collaboration. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high skill workers and more often transfer workers to jobs in other industries inside the merged firm. Overall, our results identify human capital as a source of value from corporate diversification and provide an explanation for seemingly unrelated acquisitions.

Keywords: Corporate Diversification, Mergers and Acquisitions, Internal Labor Markets, Worker Mobility, Human Capital Transferability

JEL Classification: G34, J24, J62, M51, M54