Acquisition Premiums, Subsequent Workforce Reductions and Post‐Acquisition Performance

Hema A. Krishnan, Michael A. Hitt and Daewoo Park

Journal of Management Studies, 2007, vol. 44, issue 5, 709-732

Abstract: abstract This study suggests that paying acquisition premiums leads to workforce reductions in the merged firm, which in turn results in poorer post‐acquisition performance. This issue is important to scholars and practising managers given the pervasiveness and importance of knowledge and human capital to competitive advantage. In a sample of 174 major related acquisitions completed in the period 1992–98, results show a positive relationship between the premium paid for an acquisition and subsequent workforce reductions, controlling for a number of alternative explanations. Additionally, workforce reduction mediates the negative relationship between premiums and post‐acquisition performance. The results suggest that the effects of workforce reductions following large premiums paid for the acquired firm can be detrimental to the interests of the organization.

Date: 2007
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