Hiring through Startup Acquisitions: Preference Mismatch and Employee Departures

J. Daniel Kim

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper investigates the effectiveness of startup acquisitions as a hiring strategy. Unlike conventional hires who choose to join a new firm on their own volition, most acquired employees do not have a voice in the decision to be acquired, much less by whom to be acquired. The lack of worker agency may result in a preference mismatch between the acquired employees and the acquiring firm, leading to elevated rates of turnover. Using comprehensive employee-employer matched data from the US Census, I document that acquired workers are significantly more likely to leave compared to regular hires. By constructing a novel peer-based proxy for worker preferences, I show that acquired employees who prefer to work for startups – rather than established firms – are the most likely to leave after the acquisition, lending support to the preference mismatch theory. Moreover, these departures suggest a deeper strategic cost of competitive spawning: upon leaving, acquired workers are more likely to found their own companies, many of which appear to be competitive threats that impair the acquirer’s long-run performance.

Pages: 38 pages
Date: 2018-09
New Economics Papers: this item is included in nep-bec, nep-ent and nep-sbm
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https://www2.census.gov/ces/wp/2018/CES-WP-18-41.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:18-41

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