Layoffs, Stock Price, And Financial Condition Of The Firm

Abstract

Prior empirical studies indicate that investors perceptions of managerial decisions are contingent on the finance condition of the firm. We extend this argument to employee layoffs and find that financial healthy firms exhibit lower shareholders reactions when compared with financially weak firms. The findings lend support to the potential benefit hypothesis that the future benefits of layoffs are likely to be less for financially healthy firms than for financially weak firms.