Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements

66 Pages Posted: 17 Sep 2018

See all articles by Adam Bordeman

Adam Bordeman

Cal Poly-SLO

Bharadwaj Kannan

University of Colorado at Boulder

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

We investigate the impact of mass layoff announcements on the equity value of industry rivals. When a layoff announcement conveys good (bad) news for the announcer, rivals on average witness a 0.44 percent increase (0.60 percent decrease) in cumulative abnormal stock returns. This effect is concentrated on rivals with high growth opportunities. Consistent with this finding, we also show that our results are strongest in technology industries, where growth opportunities matter the most. Our results suggest that investors perceive layoff announcements as news about industry prospects rather than just the announcer.

Keywords: mass layoffs, rivals, firm characteristics

JEL Classification: J63, G14

Suggested Citation

Bordeman, Adam and Kannan, Bharadwaj and Pinheiro, Roberto, Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements (September 2018). FRB of Cleveland Working Paper No. 16-10R. Available at SSRN: https://ssrn.com/abstract=3242362 or http://dx.doi.org/10.2139/ssrn.3242362

Adam Bordeman

Cal Poly-SLO ( email )

San Luis Obispo, CA
United States

Bharadwaj Kannan

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Roberto Pinheiro (Contact Author)

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

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

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