How Do Changes in Firms’ Social Performance Affect Stakeholders? Evidence from Employee Layoffs

61 Pages Posted: 23 Jan 2019

See all articles by Jun-Koo Kang

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

Srinivasan Selvam

Peking University - HSBC Business School

Date Written: January 20, 2019

Abstract

We examine how employee layoffs, an action that lowers a firm’s social performance, affect stakeholders’ wealth and contract terms. We find that although layoff-performance sensitivity is similar between firms with high and low corporate social responsibility (CSR) performance, high CSR firms’ shareholders, suppliers, and bondholders realize more negative returns from layoff announcements than those of low CSR firms. After layoffs, these firms also experience greater deterioration in supplier relationships, operating performance, and CSR investment and a larger increase in loan rates. The results suggest that high CSR firms’ layoffs signal their weak future prospects and deterioration in stakeholder relationships.

Keywords: Corporate Social Responsibility, Employee Layoff, Supplier, Bank Loan, Firm Value, Stakeholder Wealth, Contract Term

JEL Classification: G21, G32, G34, M51

Suggested Citation

Kang, Jun-Koo and Selvam, Srinivasan, How Do Changes in Firms’ Social Performance Affect Stakeholders? Evidence from Employee Layoffs (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=3319311 or http://dx.doi.org/10.2139/ssrn.3319311

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Srinivasan Selvam (Contact Author)

Peking University - HSBC Business School ( email )

University Town
Shenzhen, 518055
China

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