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

Marshall, Andrew and McColgan, Patrick and Susan, McLeish (2010) Why do stock prices decline in response to employee layoffs? UK evidence from the 2008 global financial crisis. In: Eastern Finance Association Annual Meeting 2010, 2010-04-14 - 2010-04-17.

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Abstract

Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during prosperous markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this with an earlier period of economic prosperity. We find a positive market reaction 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 and the industry of the announcing firm, and are mirrored in our robustness test of an earlier time period.