Acquisition Premiums, Subsequent Workforce Reductions and Post‐Acquisition Performance

TLDR: In this article, the authors show that paying acquisition premiums leads to workforce reductions in the merged firm, which in turn results in poorer post-acquisition performance, and suggest that the effects of workforce reductions following large premiums paid for the acquired firm can be detrimental to the interests of the organization.

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.