Why do stock prices decline in response to employee layoffs? U.K. evidence from the 2008 global financial crisis

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during rising financial markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this period to an earlier period of economic prosperity. We find a positive stock price response to layoffs during rising financial markets but stock price declines following employee layoffs during the 2008 financial crisis. These price effects occur irrespective of the stated reason for the layoff provided by management, the industry of the announcing firm, and are also mirrored in our robustness test of market peaks and troughs in earlier time periods.
LanguageEnglish
Pages375-396
Number of pages22
JournalJournal of Financial Research
Volume35
Issue number3
Early online date13 Sep 2012
DOIs
Publication statusPublished - 2012

Fingerprint

Global financial crisis
Stock prices
Layoffs
Employees
Financial markets
Prosperity
Investment opportunities
Financial crisis
Economics
Robustness test
Price effects
Economic conditions
Industry
Price response

Keywords

  • global financial crisis
  • recession
  • stock prices

Cite this

@article{891aa209cde94dceaa948fe53aa6d427,
title = "Why do stock prices decline in response to employee layoffs? U.K. evidence from the 2008 global financial crisis",
abstract = "Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during rising financial markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this period to an earlier period of economic prosperity. We find a positive stock price response to layoffs during rising financial markets but stock price declines following employee layoffs during the 2008 financial crisis. These price effects occur irrespective of the stated reason for the layoff provided by management, the industry of the announcing firm, and are also mirrored in our robustness test of market peaks and troughs in earlier time periods.",
keywords = "global financial crisis, recession, stock prices",
author = "Andrew Marshall and Patrick McColgan and Susan McLeish",
year = "2012",
doi = "10.1111/j.1475-6803.2012.01321.x",
language = "English",
volume = "35",
pages = "375--396",
journal = "Journal of Financial Research",
issn = "0270-2592",
number = "3",

}

TY - JOUR

T1 - Why do stock prices decline in response to employee layoffs? U.K. evidence from the 2008 global financial crisis

AU - Marshall, Andrew

AU - McColgan, Patrick

AU - McLeish, Susan

PY - 2012

Y1 - 2012

N2 - Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during rising financial markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this period to an earlier period of economic prosperity. We find a positive stock price response to layoffs during rising financial markets but stock price declines following employee layoffs during the 2008 financial crisis. These price effects occur irrespective of the stated reason for the layoff provided by management, the industry of the announcing firm, and are also mirrored in our robustness test of market peaks and troughs in earlier time periods.

AB - Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during rising financial markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this period to an earlier period of economic prosperity. We find a positive stock price response to layoffs during rising financial markets but stock price declines following employee layoffs during the 2008 financial crisis. These price effects occur irrespective of the stated reason for the layoff provided by management, the industry of the announcing firm, and are also mirrored in our robustness test of market peaks and troughs in earlier time periods.

KW - global financial crisis

KW - recession

KW - stock prices

U2 - 10.1111/j.1475-6803.2012.01321.x

DO - 10.1111/j.1475-6803.2012.01321.x

M3 - Article

VL - 35

SP - 375

EP - 396

JO - Journal of Financial Research

T2 - Journal of Financial Research

JF - Journal of Financial Research

SN - 0270-2592

IS - 3

ER -