The Market Loves a Layoff

Abstract

This paper examines whether layoffs damage or create firm value. Using a large sample of firm-matched layoff events, I show that layoffs increase firm value with abnormal returns increasing in the days and months following layoff announcements. Using a synthetic controls methodology, I also show that layoffs also continue to result in higher returns in the years following the layoff event. Using changes in minimum wage laws as a natural experiment, I show that layoffs often target low-skill workers, suggesting that layoffs do not necessarily destroy knowledge capital.

Keywords: Layoffs, Firm Value, Knowledge Capital, Event Study, Synthetic Controls

JEL Classification: D22, G31, G32, J24, J63, L25, M51