Prior research has consistently linked workforce downsizing post-acquisitions with poorer operating performance. However, these studies often fail to account for the moderating role of organizational and contextual factors, such as the relative size of the acquired workforce and the extent of downsizing. Adopting a resource constraint perspective, this study shows that downsizing can improve financial performance in certain contexts. We hypothesize and find that post-downsizing performance is heavily influenced by the integration of the acquired workforce resources, with the relative size of the acquired workforce serving as a critical factor. Our analysis of 133 downsizing events following recent acquisitions thereby demonstrates that a larger relative target workforce complicates integration, while major downsizing of smaller relative workforces overburdens organizational resources and limits synergy realization. By examining the interaction between workforce composition and downsizing strategies, this study offers a resource constraint-based perspective on when and how workforce reductions enhance post-acquisition operating performance, as well as provides management with suggestions on how to cope with resource constraints during the post-integration trajectory of an acquisition.
