How Do Shareholders Respond to Downsizing? A Meta-Analysis

32 Pages Posted: 16 Feb 2007

See all articles by Gunther Capelle-Blancard

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); PSB Paris School of Business

Nicolas Couderc

affiliation not provided to SSRN

Abstract

Massive layoffs announcements often attract extensive media coverage. Beyond the newsworthiness of such events, is such a decision in any way correlated to the company's stock market performance? Do some firms resort to massive layoffs simply to please shareholders? In this paper, we offer a thorough review of the literature in an attempt to answer these questions. The core of the paper is a meta-analysis. We show that layoffs announcements have an overall negative effect on stock market prices, and this remains true whatever the country, the period of time or the type of firm considered. However, some factors may ease as well as worsen the stock market's reaction to such announcements. The reason for the layoff decision is among the most decisive factors and the market sanction will be more severe in the case of defensive layoffs (taken by firms facing difficulties) than for offensive layoffs (when they are part of a more general reorganization strategy).

Keywords: Massive layoffs, Downsizing, Corporate Social Responsibility, Socially Responsible Investing, Corporate Governance, Event studies

JEL Classification: G14, Q5

Suggested Citation

Capelle-Blancard, Gunther and Couderc, Nicolas, How Do Shareholders Respond to Downsizing? A Meta-Analysis. Available at SSRN: https://ssrn.com/abstract=952768 or http://dx.doi.org/10.2139/ssrn.952768

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

Nicolas Couderc (Contact Author)

affiliation not provided to SSRN

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