Changes in Corporate Performance Associated with Layoffs

This paper examines changes in the industry-adjusted financial performance of 48 sample firms that laid off five percent or more employees between 1985 and 1990. Our findings indicate that the firms show significant improvements in operating cash flows and cost efficiency despite poor sales performance following layoffs. There is also evidence that the firms’ asset size increases after the layoffs. Further, we find that firms disclosing favorable news with the layoff announcements experience improvements while firms without favorable news experience deteriorations in performance. Also, the stock price reactions to layoffs are negative for firms without favorable news.