Employee layoffs, shareholder wealth and firm performance: evidence from the UK

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47 Citations (Scopus)


We examine the financial performance of UK listed companies surrounding the announcement of permanent employee layoffs. We find that poor operating and stock price performance, increased gearing, and threats from external markets for corporate control precede employee layoffs. Layoff announcements elicit a significantly negative stock price reaction, which is driven by announcements that are reactive to poor financial conditions. We also find that layoffs result in significant increases in employee productivity and corporate focus. We conclude that layoffs represent an efficient response to poor financial conditions, but that their occurrence is strongly dependent on pressure from external control markets.
Original languageEnglish
Pages (from-to)467-494
Number of pages27
JournalJournal of Business Finance and Accounting
Issue number3-4
Publication statusPublished - 2007


  • corporate control
  • corporate restructuring
  • employee layoffs firm performance


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