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Build or Buy? Human Capital and Corporate Diversification

Author

Listed:
  • Paul Beaumont
  • Camille Hebert
  • Victor Lyonnet

Abstract

Firms enter new sectors by either building on their resources or buying existing companies. Using French administrative data, we propose a measure of human capital distance between a firm and a sector of entry. Using a shift-share instrument, we show that firms build in close sectors and buy in distant sectors in terms of human capital distance. Firms build by hiring new workers, which becomes increasingly costly in distant sectors as it requires not only hiring more workers but also having more organizational capital to integrate these workers. Hence, firms buy in distant sectors to acquire already operational human capital.

Suggested Citation

  • Paul Beaumont & Camille Hebert & Victor Lyonnet, 2025. "Build or Buy? Human Capital and Corporate Diversification," The Review of Financial Studies, Society for Financial Studies, vol. 38(5), pages 1333-1367.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:5:p:1333-1367.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf004
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    More about this item

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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