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Acquisition Premiums, Subsequent Workforce Reductions and Post-Acquisition Performance

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  • Hema A. Krishnan
  • Michael A. Hitt
  • Daewoo Park
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    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. Copyright Blackwell Publishing Ltd 2007.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6486.2006.00672.x
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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Management Studies.

    Volume (Year): 44 (2007)
    Issue (Month): 5 (07)
    Pages: 709-732

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    Handle: RePEc:bla:jomstd:v:44:y:2007:i:5:p:709-732

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2380

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    Web: http://www.blackwellpublishing.com/subs.asp?ref=00022-2380

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    Cited by:
    1. Clougherty, Joseph & Duso, Tomaso, 2008. "The impact of horizontal mergers on rivals: Gains to being left outside a merger," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 239, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Weitzel, Utz & Kling, Gerhard, 2012. "Sold below value? Why some targets accept very low and even negative takeover premiums," MPRA Paper 42832, University Library of Munich, Germany.
    3. Malhotra, Shavin & Zhu, PengCheng, 2013. "Paying for cross-border acquisitions: The impact of prior acquirers’ decisions," Journal of World Business, Elsevier, vol. 48(2), pages 271-281.
    4. Colombo, Massimo G. & Rabbiosi, Larissa, 2014. "Technological similarity, post-acquisition R&D reorganization, and innovation performance in horizontal acquisitions," Research Policy, Elsevier, vol. 43(6), pages 1039-1054.

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