It’s Different: Examining the Effect of HRM Investments on Employee Downsizing Following Mergers and Acquisitions

Although some scholars in strategic human resource management (SHRM) research have suggested that HRM investments can be effective in reducing the negative repercussions of employee downsizing, other scholars have argued that such HRM investments could convey contradictory messages to employees, resulting in more negative employee reactions and decreased firm performance. In this research, we addressed this unsettled question by looking into the mergers and acquisitions (M&A) context, where we theorized that the acquiring firm’s HRM investments can positively moderate the negative effect of employee downsizing on firm performance by invoking positive sensemaking processes from remaining acquired firm employees. Moreover, the positive sensemaking effects of HRM investments extend beyond remaining acquired firm employees to influence the overall performance of the merged firm. We examined established HRM investments by acquiring firms prior to the M&A and additional HRM investments made after the M&A. Using a representative sample of 5,467 firm-year observations from 1,214 U.S. publicly traded firms between 2002 and 2018, we found that both pre- and post-acquisition HRM investments by acquiring firms mitigate the negative effect of employee downsizing following M&A on firm performance. We discuss the implications of these findings for both research and practice.