War for Talent: An Investigation on Acquihiring through Shortages Skilled Immigrants in the United States
Project Title(Chinese) :
人才戰爭：透過研究在美國雇用外國技術型人才的收購雇用
Principal Investigator(English) :
Prof HSHIEH, Shenje
Principal Investigator(Chinese) :
Department :
Department of Economics and Finance
Institution :
City University of Hong Kong
E-mail Address :
shshieh@cityu.edu.hk
Tel :
Co - Investigator(s) :
Panel :
Business Studies
Subject Area :
Business Studies
Exercise Year :
2020 / 21
Fund Approved :
351,992
Project Status :
Completed
Completion Date :
30-6-2023
Project Objectives :
We test whether skilled labor shortages increase M&A activities by employing two natural experiments: one based on random H-1B visa lotteries and the other based on a policy shock to the supply of high-skilled foreign labor. In the face of skilled foreign labor rationing, we anticipate that public firms are more likely to acquire talent through M&A or acquihiring. Identifying a skilled labor channel in M&A contributes to the academic literature as there are no studies that establish a causal relationship between skilled labor supply and M&A transactions. Additionally this sheds light on the startup ecosystem and provides valuable information to practitioners in the startup industry (founders, CEOs, skilled workers, etc.) on alternative startup exit pathways.
We evaluate the characteristics of the target firms being acquired as a result of skilled foreign labor shortages. We hypothesize that targets are predominantly private, high-tech firms that have hired through the H-1B program. We expect skilled labor to come from acquisitions of smaller, private tech firms which would confirm anecdotal evidence that acquihirers are interested in specific teams with highly specialized skill sets. Additionally, we suspect such highly specialized workers would come from the H-1B labor pool. Corroborating this hypothesis contributes to the existing academic literature, as only a handful of working papers have attempted to characterize labor-driven acquisitions. Practitioners, particularly startup founders, may also find this knowledge relevant if they want to increase their likelihood of being acquihired.
We determine if acquihiring can overcome frictions in labor mobility caused by labor law restrictions by testing whether acquihiring is more likely to occur in companies headquartered in US states that have stronger non-compete labor laws, resulting in higher costs of skilled labor hiring. Completing this objective contributes to the law and economics academic literature and therefore has policy implications on skilled worker immigration. Findings from completing this objective is relevant to policymakers as it informs them on how corporations can strategically circumvent labor laws through corporate restructuring.
We determine if acquirers experience an exodus of skilled workers after M&A deal completion. The primary concern of acquihiring is whether the acquired talent is willing to stay with the acquirer long enough to have an impact. We plan to construct measures of worker turnover using LinkedIn data to verify that there is no outflow of skilled labor after deal completion. Completing this objective contributes to the literature on corporate culture and informs us on whether acquirers careful in considering labor compatibility with their targets. This is also valuable information for industry professionals who are considering acquihiring. The scraped LinkedIn data that we use, once refined, can also be used in future labor-related research projects.
We demonstrate whether acquirers’ demand for skilled workers compounds in response to skill labor shortages. As a robustness check, we will verify whether our exogenous source of skilled labor shortages exacerbates skilled labor demand. This will be done by using unique job postings data provided by Burning Glass Technologies as a measure of skilled labor demand. Completing this objective serves to empirically support our initial findings and aforementioned objectives above. This is also valuable for future labor-related research projects in which one needs to measure skilled labor demand accurately.
We show that labor-driven M&A transactions generate long-lasting synergies. We predict that, on average, acquihiring is not simply a consequence of empire-building. We follow the existing M&A literature and use exogenous M&A deal withdrawals to test whether completed acquisitions in which targets share similar labor skill demands with acquirers prior to deal-announcement produce positive long-run abnormal stock returns. Completing this objective contributes to the M&A literature on quantifying synergies. Our results would be unique in its focus on labor synergies. This finding would also be relevant and valuable to industry professionals interested in acquihiring.
We write papers publishable in top tier finance or management journals.
Abstract as per original application (English/Chinese):
In the knowledge-based economy, high-skilled labor has become increasingly influential in firm value creation. Yet the motivations for and consequences of strategically integrating skilled labor remain empirically unexplored in the M&A literature. In this project, we take a step towards understanding the role of skilled labor in M&A decision-making and ask whether changes to the skilled labor supply help explain M&A decisions of publicly traded firms.
Large Silicon Valley technology companies such as Google and Facebook have faced significant talent shortages in recent years. This has resulted in the continued expansion of these large technology companies into other cities and states beyond Silicon Valley to access new populations of skilled labor. Anecdotal evidence suggests that in addition to direct hiring, "acquihiring", which is the practice of buying companies to acquire their talented employees rather than their projects and assets, has become a popular strategy to satisfy skilled labor demand. When the amount of highly talented individuals is in short supply, buying talent through M&A may be a more effective recruiting strategy for acquirers who are interested in teams rather than individuals. However, accurately identifying "acquihiring" is difficult, as acquirers rarely acknowledge their real intentions publicly.
In this project, we seek first to answer the fundamental question: do firms pursue M&A in response to skilled labor shortages? Employing two natural experiments, one based on random lotteries that the United States Citizenship and Immigration Services uses to allocate H-1B visas and the other based on a policy shock to the overall supply of skilled foreign labor through the H-1B program, we test whether shortages of skilled foreign workers can cause firms to pursue acquisitions. Our goal is to establish empirically a labor market channel in M&A.
Bias in estimating labor synergies by comparing firm performance between those engaging in M&A and those that do not is problematic due to the inability to control for unobservable confounding factors. We plan to address this issue with another natural experiment that compares the performance of acquirers of completed labor-driven M&A deals to acquirers of labor-driven M&A deals that are withdrawn due to reasons unrelated to skilled labor and beyond the control of those involved in the deals. We predict that exogenously completed M&A deals with high levels of labor complementarity between acquirers and targets, which we will measure using job classification data from our H-1B visa micro-dataset, will improve acquirer performance in the long-term.
在知識經濟裡，高級技術型人才對創造企業價值越來越重要。然而，戰略性雇用高級技術型人才的動因及結果在收購與兼併文獻上未有進行經驗性研究。在這個項目裡，我們將進一步研究技術型人才在收購與兼併決策中的角色，及改變雇用技術型人才是否有助於上市公司的收購與兼併決策。
近年來，矽谷大型科技公司如谷歌和臉書面臨大量人才緊缺問題。因此這些大型科技公司在矽谷以外的其他城市或洲尋找技術型人才。軼事顯示除直接雇用外，“收購”，通過購買公司以獲取他們的員工而不是其項目或資產，成為了滿足這些公司技術人才短缺需求的流行策略。在高級技術型人才短缺的時候，透過收購與兼併獲得人才，對那些對團隊而非個人更有興趣的公司來說或許是更有效的策略。然而，要準確定義“收購雇用”是比較困難的，因為收購者很少公佈其真正意圖。
在此項目裡，我們首先回答基本問題：公司是否通過收購與兼併解決其人才短缺問題？我們進行了兩項自然實驗，一項基於美國公民及移民局隨機分配的H-1B簽證，而另一項基於H-1B簽證裡對海外技術型人才的總體供應的政策衝擊。我們測試是否缺乏海外技術型人才可以導致公司進行兼併。我們的目標是在收購與兼併裡創建基於經驗的人才管道。
由於無法觀察到的混雜因素，通過比較從事並購的公司與未有從事並購公司間的業績來估計人才協同效應是有有失偏頗的。我們計畫通過另一項自然實驗解決該問題，通過比較順利完成人才並購公司的業績與因為與人才無關或無法控制因素導致人才並購未完成公司之間的業績。此經驗策略來自並購交易中量化協同效應的現有文獻。我們預計，通過使用我們的H-1B簽證微觀資料裡面的工作分類，通過完成並購交易獲取與被收購物件間人才互補的公司，長遠來看將提升其業績表現。
Realisation of objectives:
All project objectives have been fully achieved using nearly the exact methodology described in the proposal that was submitted with the grant application. All research questions mentioned in the objectives were answered thoroughly. However, I refined some of my original econometric specifications and used alternative datasets to get cleaner and more compelling results. Those changes are the following:
1. In objective 2, I found that my results were stronger when only looking at M&A deals for which the transaction value were not disclosed. Firm size for private firms is typically not observable. I proxied for small (relative) size of the target firm being acquired using undisclosed transaction value as an indicator.
2. In objective 5, rather than using job posting data, I opted to measure skilled labor demand based on the proportion of STEM workers at the state and county levels. Job posting data from the company Burning Glass Technologies (now called “Lightcast”) has poor data coverage over the relevant time period in our study.
3. While the test mentioned in objective 6 were conducted, we chose not to include the results in our final published manuscript because empirical setting lacked statistical power (i.e., small sample size).
Empirical results derived from achieving objectives 1, 2, 3, 4, and 5 are documented in a research paper that is forthcoming the Journal of Quantitative and Financial Analysis, a top ranking finance journal (i.e., objective 7 achieved).
Summary of objectives addressed:
Objectives
Addressed
Percentage achieved
1.
We test whether skilled labor shortages increase M&A activities by employing two natural experiments: one based on random H-1B visa lotteries and the other based on a policy shock to the supply of high-skilled foreign labor. In the face of skilled foreign labor rationing, we anticipate that public firms are more likely to acquire talent through M&A or acquihiring. Identifying a skilled labor channel in M&A contributes to the academic literature as there are no studies that establish a causal relationship between skilled labor supply and M&A transactions. Additionally this sheds light on the startup ecosystem and provides valuable information to practitioners in the startup industry (founders, CEOs, skilled workers, etc.) on alternative startup exit pathways.
Yes
100%
2.
We evaluate the characteristics of the target firms being acquired as a result of skilled foreign labor shortages. We hypothesize that targets are predominantly private, high-tech firms that have hired through the H-1B program. We expect skilled labor to come from acquisitions of smaller, private tech firms which would confirm anecdotal evidence that acquihirers are interested in specific teams with highly specialized skill sets. Additionally, we suspect such highly specialized workers would come from the H-1B labor pool. Corroborating this hypothesis contributes to the existing academic literature, as only a handful of working papers have attempted to characterize labor-driven acquisitions. Practitioners, particularly startup founders, may also find this knowledge relevant if they want to increase their likelihood of being acquihired.
Yes
100%
3.
We determine if acquihiring can overcome frictions in labor mobility caused by labor law restrictions by testing whether acquihiring is more likely to occur in companies headquartered in US states that have stronger non-compete labor laws, resulting in higher costs of skilled labor hiring. Completing this objective contributes to the law and economics academic literature and therefore has policy implications on skilled worker immigration. Findings from completing this objective is relevant to policymakers as it informs them on how corporations can strategically circumvent labor laws through corporate restructuring.
Yes
100%
4.
We determine if acquirers experience an exodus of skilled workers after M&A deal completion. The primary concern of acquihiring is whether the acquired talent is willing to stay with the acquirer long enough to have an impact. We plan to construct measures of worker turnover using LinkedIn data to verify that there is no outflow of skilled labor after deal completion. Completing this objective contributes to the literature on corporate culture and informs us on whether acquirers careful in considering labor compatibility with their targets. This is also valuable information for industry professionals who are considering acquihiring. The scraped LinkedIn data that we use, once refined, can also be used in future labor-related research projects.
Yes
100%
5.
We demonstrate whether acquirers’ demand for skilled workers compounds in response to skill labor shortages. As a robustness check, we will verify whether our exogenous source of skilled labor shortages exacerbates skilled labor demand. This will be done by using unique job postings data provided by Burning Glass Technologies as a measure of skilled labor demand. Completing this objective serves to empirically support our initial findings and aforementioned objectives above. This is also valuable for future labor-related research projects in which one needs to measure skilled labor demand accurately.
Yes
100%
6.
We show that labor-driven M&A transactions generate long-lasting synergies. We predict that, on average, acquihiring is not simply a consequence of empire-building. We follow the existing M&A literature and use exogenous M&A deal withdrawals to test whether completed acquisitions in which targets share similar labor skill demands with acquirers prior to deal-announcement produce positive long-run abnormal stock returns. Completing this objective contributes to the M&A literature on quantifying synergies. Our results would be unique in its focus on labor synergies. This finding would also be relevant and valuable to industry professionals interested in acquihiring.
Yes
100%
7.
We write papers publishable in top tier finance or management journals.
Yes
100%
Research Outcome
Major findings and research outcome:
In a natural experiment based on random H-1B visa lotteries, I document that, when exposed to exogenous negative shocks to the supply of skilled workers, firms pursue more acquisitions, especially more acquisitions targeting firms that possess the skilled workers they need. I also find that acquihires are an effective means of obtaining high-skilled workers. Using employee profiles retrieved from LinkedIn and H-1B microdata, I provide direct evidence that firms acquihire high-skilled workers from target firms. To our knowledge, this is the first direct evidence that skilled workers are acquihired through M&As due to unmet skilled labor demand. I conclude that skilled labor is an important driver of acquisitions, and acquihires are an effective means of obtaining skilled workers.
Potential for further development of the research and the proposed course of action:
This study advances our understanding of acquihiring but leaves some questions unanswered. For example, although the natural experiment allows us to show that shortages in skilled labor drive firms’ M&A activities, this study and previous studies cannot categorically identify which acquisitions are pure acquihires and which are not. To meet this challenge, future studies will need detailed information on the acquirers’ needs for skilled workers and more complete information on employees in the target firms. Additionally, our direct evidence of high-skilled workers based on the targets’ H-1B workers and workers on LinkedIn does not paint a complete picture of acquihiring. Future studies can continue to fill in this picture with the help of detailed information on all employees in both acquiring and target firms.
Layman's Summary of Completion Report:
More and more firms have been hiring skilled workers through mergers and acquisitions rather than hiring them directly from the labor market. As competition for skilled workers intensifies, acquihiring has become commonplace in Silicon Valley and has also been widely adopted in virtually every industry. Nevertheless, academic research on acquihiring is rare. I provide causal evidence in this project that talent acquisition is conducted through M&A in response to firm-level labor shortages. For corporate executives and managers, this means that M&A is an effective way to recruit talent as it overcomes various labor market frictions such as non-compete laws. This research therefore helps expand the set of corporate human capital investment strategies.
Research Output
Peer-reviewed journal publication(s) arising directly from this research project : (* denotes the corresponding author)
Year of Publication
Author(s)
Title and Journal/Book
Accessible from Institution Repository
Jun Chen, Shenje Hshieh*, Feng Zhang*
Hiring High-Skilled Labor Through Mergers and Acquisitions
No
Recognized international conference(s) in which paper(s) related to this research project was/were delivered :
Month/Year/City
Title
Conference Name
London/Virtual
Hiring High-Skilled Labor through Mergers and Acquisitions
M&A Research Centre Fifth Annual Conference
Virtual
Hiring High-Skilled Labor through Mergers and Acquisitions
The Financial intermediation Research Society 15th Annual Conference
Virtual
Hiring High-Skilled Labor through Mergers and Acquisitions
Midwest Finance Association 70th Annual Meeting
Virtual
Hiring High-Skilled Labor through Mergers and Acquisitions
American Economic Association 2021 Annual Meeting
Other impact (e.g. award of patents or prizes, collaboration with other research institutions, technology transfer, etc.):
