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Human Capital Relatedness and Mergers and Acquisitions

68 Pages Posted: 6 Jul 2017  

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance

David C. Mauer

University of North Carolina at Charlotte

Qianying(Emma) Xu

University of Texas at El Paso

Date Written: June 30, 2017

Abstract

We construct a measure of the pairwise relatedness of firms’ human capital to examine whether human capital relatedness is a key factor in mergers and acquisitions. We find that mergers are more likely and merger returns and post-merger performance are higher when firms have related human capital. These relations are stronger or only present in acquisitions where the merging firms do not operate in the same industries or product markets. Reductions in employment and wages following mergers with high human capital relatedness suggest that the merged firm has greater ability to layoff low quality and/or duplicate employees and reduce labor costs. We further show in a falsification test that human capital relatedness has no effect on acquiring firm returns in asset sales when little or no labor is transferred, which helps validate our measure of human capital relatedness.

Online appendix is available at: https://ssrn.com/abstract=2996865

Keywords: Human Capital Relatedness, Mergers and Acquisitions, Asset Sales

JEL Classification: G34, J24, J41, L22, M51

Suggested Citation

Lee, Kyeong Hun and Mauer, David C. and Xu, Qianying(Emma), Human Capital Relatedness and Mergers and Acquisitions (June 30, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2996878

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

David C. Mauer (Contact Author)

University of North Carolina at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7707 (Phone)

Qianying(Emma) Xu

University of Texas at El Paso ( email )

500 W University Ave
El Paso, TX 79902
United States

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