THE FINANCIAL ENVIRONMENT OF LAYOFFS: A DESCRIPTIVE STUDY
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Abstract
This study examines the financial environment of layoffs in large corporations, a topic that has received limited empirical attention. Based on the diverse, sometimes inconsistent arguments in previous layoff and downsizing literature, we formulate four research questions about firm financial performance in the years preceding and following layoffs. We then answer those questions with data from a study of 210 layoff announcements and associated firm financial performance trends. The results suggest that average firm financial performance declines significantly prior to a layoff, and that financial performance increases significantly following a layoff, but only in the first year. Furthermore, relatively large layoffs are preceded by larger declines in financial performance, and followed by larger increases in performance, than small layoffs.