Working Paper: CEPR ID: DP15865
Authors: Paolo Fulghieri; Merih Sevilir
Abstract: This paper presents a theory of post-merger human capital integration where successful integration depends on the willingness of employees of the merging firms to collaborate and share knowledge. In our model, employees in the post-merger firm choose between collaboration to create synergies, and competition to extract greater resources from the corporate headquarters. We show that incentives to collaborate arestronger in mergers between firms with greater human capital complementarity. In such mergers the post-merger firm has a greater reliance on employee human capital in internalizing the benefut of collaboration, increasing the likelihood that employees will be retained in the post-merger firm and receive higher wages. Anticipating the importance of their human capital, employees become more willing ex ante to choose collaboration over competition, resulting in a greater likelihood of successful human capital integration. Consistent with recent empirical evidence, our model suggests that mergers between firms with greater human capital complementary lead to better merger performance. In addition, our model generates novel predictions such as post-merger wages increasing, and layoffs decreasing in the level of human capitalcomplementarity between merging firms.
Keywords: human capital; mergers
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Greater human capital complementarity (D29) | Stronger incentives for collaboration (O36) |
| Stronger incentives for collaboration (O36) | Increased likelihood of successful human capital integration (J24) |
| Greater human capital complementarity (D29) | Increased likelihood of successful human capital integration (J24) |
| Mergers between firms with greater human capital complementarity (D29) | Better merger performance (G34) |
| Higher human capital complementarity (J24) | Increased postmerger wages (J39) |
| Higher human capital complementarity (J24) | Decreased layoffs (J63) |