Competitors' Stock Price Reaction to Mass Layoff Announcements

69 Pages Posted: 29 May 2016

See all articles by Adam Bordeman

Adam Bordeman

Cal Poly-SLO

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Bharadwaj Kannan

University of Colorado at Boulder

Date Written: April 18, 2016

Abstract

Using data on layoff announcements by S&P 500 firms, we show that layoff announcements mostly contain industrywide news. Competitors’ stock price reactions are positively correlated with the announcer’s returns. This contagion effect is stronger for competitors whose values depend on growth opportunities. When layoff announcements induce positive stock returns to announcers, competitors with positive R&D see a 1.15% increase in their returns. Conversely, when announcements induce negative reactions to announcers, competitors with high sales growth see a reduction of 1.09% in returns. Our findings suggest that investors perceive layoffs as a change in growth options rather than a change in the competitive environment.

Keywords: mass layoffs, competitors, firm characteristics

JEL Classification: J63, G14

Suggested Citation

Bordeman, Adam and Pinheiro, Roberto and Kannan, Bharadwaj, Competitors' Stock Price Reaction to Mass Layoff Announcements (April 18, 2016). FRB of Cleveland Working Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2785742 or http://dx.doi.org/10.2139/ssrn.2785742

Adam Bordeman

Cal Poly-SLO ( email )

San Luis Obispo, CA
United States

Roberto Pinheiro (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Bharadwaj Kannan

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

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