Abstract

Layoffs: Are they always bad news? Considering the resent spate of layoffs, we look back in time and examine a sample of employee layoffs announced from 1990 to 1999 to see if they provide insight as to how the markets should be reacting today to announcements of employee layoffs. Our sample of firms experience poor performance and extensive CEO turnover prior to layoffs. Also, the frequency of outside succession is unusually high. Our evidence suggests a large number of layoffs result from organizational changes made by new managers. Layoff announcements are associated with negative stock returns for firms with no CEO change in the previous year, but are associated with positive stock returns for firms with a CEO change in the previous year. The latter finding provides new evidence on how organizational changes made by new managers affect firm performance. Further analysis reveals that firms with outside succession are primarily responsible for the positive stock returns. Note The authors of this paper are in the process of collecting and analyzing 5 more years of layoff data. This will more than double our sample size and allow us to provide a much more complete analysis of layoffs over a 15 year period. This will be done in time for the meetings and in time for the discussant to see the updated paper. The style of the paper will be very similar to the one we have here. Layoffs: Are they always bad news? 1.

Citations