Non-executive Employee Ownership and Target Selection in High-Tech Mergers and Acquisitions

The quest to build and expand a firm's human capital is a key driver for mergers and acquisitions (M & As), but acquiring firms often face the threat of losing their targets' key employees in the post-M & A period. This is particularly true for high-tech M & As, as human capital is especially important in high-tech industries. Because non-executive employee ownership can incentivize employees to invest in firm-specific human capital, reducing the likelihood that employees will leave, we argue that when screening for potential M & A targets, acquiring firms are more likely to target companies with higher levels of employee ownership. We also argue that the screening role of employee ownership in M & A target selection will be stronger when targets have higher R & D intensity but weaker when targets treat their employees better. Using a sample of 26,137 firm-year observations, we find support for our arguments. Findings from this study contribute to M & A research by highlighting the importance of non-executive employee ownership as a screen for human capital retention in M & A target selection.