Employee Layoff Under Different Modes of Restructuring: Exit, Downsizing or Relocation

Posted: 22 Jun 2008

See all articles by Kristien Coucke

Kristien Coucke

Vlerick Business School - Entrepreneurship, Governance and Strategy

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Leo Evariste Sleuwaegen

Vlerick Leuven Gent Management School

Date Written: April 2007

Abstract

Pressured by globalizing economies and growing international competition, an increasing number of firms are forced to rationalize productive operations. Especially poorly performing firms need to improve their profitability through downsizing or relocating their operations, which in many cases causes collective employee layoffs. This article adds to the emergent literature on the consequences of downsizing by looking into the determinants of collective employee layoffs. Based on a unique sample of Belgian firms reporting collective layoffs this article analyzes the firm's decision to dismiss all employees (exit), a significant proportion of its employees without creating new employment elsewhere (downsizing), or to move production abroad (international relocation). We theoretically derive the conditions under which a firm prefers one strategy to another. The empirical results confirm that relocating firms are most profitable among the restructuring firms, have invested more in the recent past, operate in sectors with significant economies of scale and belong more often to a multinational group than firms opting for downsizing or exit. Downsizing firms are more capital intensive than relocating firms, while exiting firms are less profitable, smaller, younger, and more labor intensive than downsizing or relocating firms.

Suggested Citation

Coucke, Kristien and Pennings, Enrico and Sleuwaegen, Leo Evariste, Employee Layoff Under Different Modes of Restructuring: Exit, Downsizing or Relocation (April 2007). Industrial and Corporate Change, Vol. 16, Issue 2, pp. 161-182, 2007. Available at SSRN: https://ssrn.com/abstract=1149212 or http://dx.doi.org/10.1093/icc/dtm002

Kristien Coucke (Contact Author)

Vlerick Business School - Entrepreneurship, Governance and Strategy ( email )

Vlamingenstraat 83
Leuven, B-3000
Belgium
+32 16 323635 (Phone)

HOME PAGE: http://www.vlerick.be/research/db/search.cfm?menu1=764

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Leo Evariste Sleuwaegen

Vlerick Leuven Gent Management School ( email )

Library
REEP 1
Gent, BE-9000
Belgium
003292109727 (Phone)
003292109747 (Fax)

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