Chickens Flying the Coop: Employee Mobility and Acquisition Targets



´╗┐Extant M&A research has focused on how acquiring firms may use acquisitions as a means to source human talents from target companies. In this study, we argue that acquirers incorporate their expectations about potential employee mobility in a firm into their decisions regarding whether to bid for the firm, suggesting a negative relationship between the expected employee mobility in a firm and the likelihood of the firm becoming an acquisition target. We exploit an inadvertent change in the enforcement of non-compete agreements in Michigan as an observable, exogenous source of variation in employee mobility that acquiring firms can incorporate into their acquisition decisions. Using a difference-in-differences approach and the population of listed firms in Michigan and in a set of comparison states, we find causal evidence that constraints on employee mobility due to the increase in non-compete enforcement in Michigan raise the likelihood that a Michigan firm becomes an acquisition target. We also find that the effect of the policy change is stronger when the firm is exposed to greater risks of employee mobility, such as when the firm employs more knowledge workers in its work force and when it faces greater instate competition; by contrast, the effect of the policy change is weaker when the firm is protected by a stronger intellectual property regime that can mitigate knowledge loss due to employee mobility.
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Patricia de Wilde