The Human Factor in Acquisitions: Cross-industry Labor Mobility and Corporate Diversification.

The article investigates the role of human capital transferability (HCT)—measured by the frequency of worker job changes between industries—as a key driver of corporate diversification through acquisitions. It finds that firms are more likely to diversify into industries with higher HCT, particularly among high-skill workers, and that such deals yield significantly greater postmerger labor productivity gains and lower divestiture rates compared to low-HCT or within-industry acquisitions. Using U.S. Census Bureau data, the study also shows that acquiring firms retain more high-skill workers and reallocate employees across industries internally when HCT is high, supporting the value of internal labor markets in facilitating human capital redeployment. Additionally, the composition of diversified firms correlates strongly with HCT measures, suggesting human capital transferability influences firm boundaries beyond product market considerations. The findings challenge views that diversification inherently destroys value, highlighting human capital synergies as a source of corporate scope expansion.