Startup Acquisitions as a Hiring Strategy: Turnover Differences Between Acquired and Regular Hires

Abstract

Prior studies suggest that acquisitions can increase employee turnover. However, acquired workers are technically new hires, who are generally prone to turnover. Therefore, it is important to benchmark acquired workers against other new hires in the organization. One view suggests that compared with regular hires who select their employer based on a mutual vetting process, acquired workers can experience a poor fit with their new employer (e.g., culture clash), resulting in elevated rates of turnover. Meanwhile, as acquisitions represent a bundle of assets, acquired workers can possess complementarities accumulated with the target firm that reinforce worker–employer fit and thus their retention prospects. Using population-level data from the United States, I find empirical support for both perspectives. Acquired workers from startups exhibit significantly higher turnover rates than regular hires. Moreover, in conditions under which acquired workers’ complementarities are more likely to be preserved—specifically, individuals with longer prior tenure, teams in which the founders remain intact, and target organizations that are structurally separated rather than integrated into the acquirer—I find reduced turnover differences for acquired workers relative to regular hires. Together, these results elucidate whether and when firms can harness human capital through startup acquisitions (“acqui-hiring”). Funding: This research was funded in part by the Ewing Marion Kauffman Foundation. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0026 .