The Impact of Corporate Social Responsibility on Employee Layoffs, Severance Payments, and Layoff Disclosure

65 Pages Posted: 4 Nov 2018

See all articles by Denton Collins

Denton Collins

Texas Tech University - Rawls College of Business

Gary Fleischman

Texas Tech University

Daniela Sanchez

Texas Tech University - Area of Accounting

Date Written: October 10, 2018

Abstract

We examine the impact of corporate social responsibility (CSR) performance on the likelihood and magnitude of firms’ decisions to lay off employees (henceforth referred to as “layoffs”), the magnitude of severance payments made to terminated employees, and the likelihood of voluntary disclosure details about the layoff events. Using S&P 500 firms over 22 years, we find that firms with high CSR performance (HCSR) are more likely to engage in layoffs, and to lay off significantly more employees compared to firms with low CSR performance (LCSR). We also find that HCSR firms provide greater severance benefits to terminated employees, and that they disclose more details surrounding the layoffs. Because HCSR firms lay off more employees than LCSR firms on average, overall they realize greater layoff-related net present-values (NPV). Additional analysis reveals that during the financial crisis HCSR firms optimized labor cost by laying off significantly more employees than LCSR firms, which provides an explanation to a prior finding that HCSR firms have higher returns and profitability during crisis years, relative to LCSR firms. These results, consistent with enlightened stakeholder theory, fill a noteworthy gap in the CSR literature by providing evidence on how firms adopting a “good corporate citizen” mindset respond to adverse economic forces that require employee-downsizing decisions.

Keywords: Corporate Social Responsibility (CSR), Layoffs, Downsizing, Restructuring, Enlightened Stakeholder Theory

JEL Classification: G3, M4

Suggested Citation

Collins, Denton and Fleischman, Gary and Sanchez, Daniela, The Impact of Corporate Social Responsibility on Employee Layoffs, Severance Payments, and Layoff Disclosure (October 10, 2018). Available at SSRN: https://ssrn.com/abstract=3265483 or http://dx.doi.org/10.2139/ssrn.3265483

Denton Collins (Contact Author)

Texas Tech University - Rawls College of Business ( email )

School of Accounting
Lubbock, TX 79409
United States

Gary Fleischman

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Daniela Sanchez

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

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