Competitors' Stock Price Reaction to Mass Layoff Announcements
69 Pages Posted: 29 May 2016
Date Written: April 18, 2016
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: Suggested Citation