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The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs. Strathprints provides access to thousands of Open Access research papers by University of Strathclyde researchers, including those from the School of Psychological Sciences & Health - but also papers by researchers based within the Faculties of Science, Engineering, Humanities & Social Sciences, and from the Strathclyde Business School.

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

McColgan, P. and Hillier, C. and Marshall, A.P. and Wereman, S. (2007) Employee layoffs, shareholder wealth and firm performance: evidence from the UK. Journal of Business Finance and Accounting, 34 (3-4). pp. 467-494. ISSN 0306-686X

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Abstract

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.