Build or Buy? Human Capital and Corporate Diversification

Fisher College of Business Working Paper No. 2019-03-018

Charles A. Dice Working Paper No. 2019-18

84 Pages Posted: 30 Aug 2019 Last revised: 30 Sep 2023

See all articles by Paul Beaumont

Paul Beaumont

McGill University - Desautels Faculty of Management

Camille Hebert

University of Toronto - Rotman School of Management

Victor Lyonnet

Ohio State University (OSU)

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2023

Abstract

Firms either enter new sectors by building on their resources or buying existing companies. Using French administrative data, we propose a measure of human capital distance between a firm and a sector of entry. Using a shift-share instrument, we show that firms build in close sectors and buy in distant sectors in terms of human capital distance. Firms build by hiring new workers, which becomes increasingly costly in distant sectors as it requires not only hiring more workers but also having more organizational capital to integrate these workers. Hence, firms buy in distant sectors to acquire already operational human capital.

Keywords: Diversification, M&As, Human capital, Labor market frictions

JEL Classification: G34,L25, J24, J30

Suggested Citation

Beaumont, Paul and Hebert, Camille and Lyonnet, Victor, Build or Buy? Human Capital and Corporate Diversification (September 20, 2023). Fisher College of Business Working Paper No. 2019-03-018, Charles A. Dice Working Paper No. 2019-18, Available at SSRN: https://ssrn.com/abstract=3444992 or http://dx.doi.org/10.2139/ssrn.3444992

Paul Beaumont

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

HOME PAGE: http://https://paulhbeaumont.github.io/

Camille Hebert

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Victor Lyonnet (Contact Author)

Ohio State University (OSU) ( email )

Columbus, OH 43210
United States

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