Build or Buy? Human Capital and Corporate Diversification

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

Charles A. Dice Center Working Paper No. 2019-18

54 Pages Posted: 30 Aug 2019 Last revised: 8 Jun 2022

See all articles by Paul Beaumont

Paul Beaumont

Paris Dauphine University

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: June 6, 2022

Abstract

Why do some firms enter a new sector by building on their resources ("build") while others buy an existing company ("buy")? Using French administrative data, we propose a measure of human capital distance between a firm and a sector of entry. We show that firms build in close sectors and buy in distant sectors in terms of human capital. We establish causality using a shift-share instrument. Firms build by hiring new workers, which is more costly in distant sectors because it requires more organizational skills. 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

Suggested Citation

Beaumont, Paul and Hebert, Camille and Lyonnet, Victor, Build or Buy? Human Capital and Corporate Diversification (June 6, 2022). Fisher College of Business Working Paper No. 2019-03-018, Charles A. Dice Center Working Paper No. 2019-18, Available at SSRN: https://ssrn.com/abstract=3444992 or http://dx.doi.org/10.2139/ssrn.3444992

Paul Beaumont

Paris Dauphine University ( email )

Place du Maréchal de Tassigny
Paris
France

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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