Abstract
While previous literature agrees that stakeholders are important when considering firm performance as they are key in influencing outcomes and goals, there is a debate around the performance effect of employee orientation in firms. We contribute to this debate by providing new evidence on the relationship between employee orientation and firm performance in the context of acquisitions. In particular, we explore the effect of firms’ employee orientation on knowledge workers' performance in the post-acquisition period, where previous studies have reported a decline in knowledge workers’ performance. Using a large panel dataset of publicly listed US companies, our paper finds that a greater level of employee orientation diminishes the performance decline in knowledge workers in the post-acquisition period. Our paper identifies three channels for this effect. First, managers’ training allows managers to better understand and react to employees signalling during the post-acquisition period. Second, the existence of training and development programmes for employees, which empathizes prospects of career progression and helps in dealing with possible changes in job definitions hence minimising the uncertainty generated by the acquisition. Third, a non-performance orientation reassures employees that the firm is less likely to undertake cost-saving programs and that creates a more favourable environment for creativity. Our paper has practical implications as it shows that employee orientation is a powerful tool to mitigate the often observed drop in employee performance around the turmoil time of acquisitions.