How Anticipated Employee Mobility Affects Acquisition Likelihood: Evidence from a Natural a Natural Experiment.
ABSTRACT.听Extant M&A research has focused on how acquiring firms may use acquisitions to source human talents from target companies. In this study, we argue that acquirers incorporate expectations about employee mobility into decisions regarding whether to bid for a 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 a natural experiment in Michigan wherein an inadvertent change in the enforcement of non-compete agreements provides an observable, exogenous source of variation in employee mobility. Using a differencein-differences approach, we find causal evidence that constraints on employee mobility in Michigan raise the likelihood that a Michigan firm becomes an acquisition target. We also find that the effect is stronger when a firm is more exposed to the negative consequences of employee mobility, such as when a firm employs more knowledge workers in its work force and when a firm faces greater in-state competition; by contrast, the effect is weaker when a firm is protected by a stronger intellectual property regime that mitigates the consequences of employee mobility.