Article: Stock prices' reactions to layoff announcements Journal: Journal of Business and Management (JBM) 2002 Vol.8 No.2 pp.99 - 107 Abstract: Despite continuing economic expansion and low unemployment, companies laid off about half a million workers between 1992-1998. The reasons for this massive workforce reduction vary from disappointing sales growth, slowdowns in orders from international markets (particularly Asian countries), off-shore and maquiladoras production in Asia and Mexico which reduced labor costs, and reductions in payroll expenses to become competitive and to improve the bottom line of the business. Analysts often argue that a layoff announcement is a form of informational signaling to investors that the firm\'s management has embarked on plans to boost the company's stock. This paper examines stock price reaction to layoff announcements over a seven-year period. A sample of 174 layoff announcements involving U.S. companies occurring between 1992 and 1998 is analyzed. Our findings support the hypothesis that layoff announcements do indeed convey information useful for the valuation of firms. We find positive abnormal returns for the firms with proactive announcements and negative abnormal returns for the firms with reactive announcements. Inderscience Publishers - linking academia, business and industry through research

Title: Stock prices' reactions to layoff announcements

Authors: Javad Kashefi; Gilbert J. McKee

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: Despite continuing economic expansion and low unemployment, companies laid off about half a million workers between 1992-1998. The reasons for this massive workforce reduction vary from disappointing sales growth, slowdowns in orders from international markets (particularly Asian countries), off-shore and maquiladoras production in Asia and Mexico which reduced labor costs, and reductions in payroll expenses to become competitive and to improve the bottom line of the business. Analysts often argue that a layoff announcement is a form of informational signaling to investors that the firm\'s management has embarked on plans to boost the company's stock. This paper examines stock price reaction to layoff announcements over a seven-year period. A sample of 174 layoff announcements involving U.S. companies occurring between 1992 and 1998 is analyzed. Our findings support the hypothesis that layoff announcements do indeed convey information useful for the valuation of firms. We find positive abnormal returns for the firms with proactive announcements and negative abnormal returns for the firms with reactive announcements.

Keywords: Stock prices; layoffs announcements; abnormal returns; firm valuation.

DOI: 10.1504/JBM.2002.141078

Journal of Business and Management, 2002 Vol.8 No.2, pp.99 - 107

Published online: 05 Sep 2024 *

Title: Stock prices' reactions to layoff announcements

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