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Title: Layoffs, shareholders' wealth, and corporate performance
Authors: Chen, P
Mehrotra, V
Sivakumar, R
Yu, WW
Keywords: Layoffs
Corporate restructuring
Work force reduction
Issue Date: 2001
Publisher: Elsevier
Source: Journal of empirical Finance, 2001, v. 8, no. 2, p. 171-199 How to cite?
Journal: Journal of empirical finance 
Abstract: We examine the relation between layoffs and stockholders' wealth, and corporate performance subsequent to layoffs. We find that layoffs are preceded by a period of poor stock market and earnings performance, and are followed by significant improvements in both. On average, layoff announcements are associated with a significantly negative stock market response, with the lowest returns associated with layoffs attributed to declining demand. We do not find any evidence that layoff announcements are followed by reduced total employment in the subsequent 3 years; however, we find evidence of improving profit margins and improved labor productivity following layoffs. We find no evidence that the eventual turnaround in firm performance following layoff decisions is due to mean reversion in accounting earnings. Finally, we find that layoff firms tend to increase corporate focus. Our findings support the view that a layoff decision is a rational response to ensure corporate survival.
ISSN: 0927-5398
DOI: 10.1016/S0927-5398(01)00024-X
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