Substituting Talent with Transactions: Acquisitions as Responses to Immigration Restrictions

We examine how firms respond to talent scarcity caused by restrictive immigration policies. We argue that when firms cannot build capabilities internally through hiring, they alter their boundaries by engaging in corporate acquisitions to make up for the foregone talent and capabilities. Using data on 3,861 U.S. firms and their use of the H-1B visa program (2001-2020), we leverage two exogenous shocks—the 2004 H-1B cap reduction and the 2007-2008 visa lottery—and find causal evidence that firms make more acquisitions as their exposure to immigration restrictions rises. This effect is stronger for deals with purposes related to the skills of the foregone talent, for small acquisitions, for domestic targets, and for targets in places with higher concentrations of skilled workers.