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

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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.
Original languageEnglish
Pages (from-to)375-396
Number of pages22
JournalJournal of Financial Research
Volume35
Issue number3
Early online date13 Sep 2012
DOIs
Publication statusPublished - 2012

Keywords

  • global financial crisis
  • recession
  • stock prices

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