Build or Buy? Human Capital and Corporate Diversification

Paul Beaumont, Camille Hebert and Victor Lyonnet

The Review of Financial Studies, 2025, vol. 38, issue 5, 1333-1367

Abstract: Firms enter new sectors by either 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.

JEL-codes: G34 J24 J30 L25 (search for similar items in EconPapers)
Date: 2025
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