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.