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Stock market reactions to layoff announcements – analysis of the renewable energy sector
Abstract
Purpose
This study aims to analyze stock market reactions to layoff announcements in the renewable energy sector. The global renewable energy sector and most of the producers of wind and solar energy equipment are struggling. While changes in the regulation and in the promotion of energy production from renewable sources reduced the attractiveness of these technologies, many involved companies had to downsized their workforce to increase performance. The public often perceives these announcements as a way of increasing shareholder wealth at the cost of the employees. Support for this claim is often given in the form of isolated case study considerations. However, the case may be different for the renewable energy sector as changes in the overall institutional environment have sustainably deteriorated the prospects of this industry.
Design/methodology/approach
This study analyses stock market reactions of 65 layoff announcements made by companies in the renewable energy industry in the years from 2005 to 2014. The reactions are measured by cumulative abnormal returns, which are obtained by using the event study methodology.
Findings
It shows a significantly negative market reaction to the announcement of a layoff plan on the event day. The findings are generally in line with our expectations and underline the negative perspectives of the sector from a capital market point of view and the declining importance of the sector with respect to employment numbers.
Originality/value
The results of this study are important for investors when estimating the capital market reactions to layoff announcements and when they form their own expectations regarding possible future layoff announcements. For the public, the results are of interest as the prejudice, that layoff plans are used to increase shareholder wealth, can be dismantled. The opposite is shown.
... The findings from the extant literature are mixed not only on the valence of investor reaction (i.e., whether positive or negative) but also on the magnitude of the reaction (Brauer & Zimmermann, 2019). Specifically, the literature has recorded that investor reaction to layoff announcements varies from −5.077% (Kunert et al., 2017) to 2.09% (Nzau, 2016). Motivated by this variation, our second research question is: What explains the mixed findings from extant research? ...
Does a firm's layoff announcement elicit a negative or a positive reaction from its stock investors? The extant empirical evidence on this question is mixed. The authors' meta‐analysis of 34,594 layoff announcements taken from 126 samples featured in 78 studies reports that the average investor reaction is significantly negative (effect size of −0.549). Next, the authors use signaling theory—specifically, characteristics of the signal, the signaler, and the signaling environment—to examine variation in investor reaction. They find that investors do not react if a layoff announcement signals proactive management (e.g., cost cutting) but penalize the firm if the layoff indicates reactive management (e.g., decline in demand). The penalty is also positively associated with layoff size but unrelated to firm size. Further, investors have become less punitive over time, or if its stock is traded on an exchange in civil law (vs. common law) country. The empirical generalizations guide managers on the consequences of their layoff announcements.
... Changes in market prices can occur in the short, medium, and long term. Several studies verify the impact of the dis-closure of new regulatory information on the financial market (Binder, 1985;Dnes & Seaton, 1999;He et al., 2020;Hoang et al., 2020;Kunert et al., 2017;Ramiah et al., 2015;Su & Fleisher, 1998;Zhao et al., 2018). However, few studies address the impact of government regulation in electricity markets. ...
We examine the effect of the “Proposal for Free Market Expansion of the Electricity Sector” disclosure on Brazil’s short-term stock market prices and volatility. We employ the Difference-in-Differences and the Doubly Robust Difference-in-Differences methodologies to analyze the proposal’s disclosure effect on daily returns and volatility of electricity sector companies listed on the Brazilian stock exchange. Results show a negative effect of the policy on stocks’ average daily returns and volatility.
... Both of which operate in the energy industry, Energy Transfer and OKE have a significant interest in prospective energy pricing. Business valuation is challenging due to the significant fluctuation of petroleum and natural gas pricing [3]. This has been proven in current history, as world oil prices have undergone substantial changes and a high degree of instability. ...
... As a result, it has found that volatility of crude oil price and metal does not reflect directly on all Indian stock prices, but some industry has significant influence. Kunert et al. (2017) examined the stock reactions after the 65 layoff announcements made by the companies between the periods 2005 and 2014 using the cumulative abnormal returns (CAR) methodology. The study found a negatively significant market reaction to the announcement on the event day. ...
Abstract:
Purpose - The purpose of the study is to investigate the long-run and short-run dynamic relationship between crude oil prices and the movement of Sensex for the period of 2000–2018.
Design/methodology/approach
The study uses the augmented Dickey–Fuller test for the presence of unit root, Johansen cointegration test for estimating the cointegration among the variables. Further, in the case of no cointegration found, the study employed the vector autoregression (VAR) model to estimate the long-run relationship and the Granger causality/Wald test for short-run relationship. The study also conducted tests for the prerequisites of the model: serial correlation, heteroskedasticity and normality of data.
Findings
The study found that both the variables, crude oil prices and Sensex are integrated of order 1, that is, I (1), and there is no cointegration between them. Further, the results proliferated from the VAR model unfold the marked effect of previous month crude oil prices (lag 1) on the movement of Indian stock market represented by Sensex considered as the benchmark index. Furthermore, VAR–Granger causality/block exogeneity Wald tests results indicated that there is a causal relationship between the crude oil prices and Sensex under the VAR environment. The model does not have any serial correlation and heteroskedasticity indicating toward the unbiased and robust estimates.
Research limitations/implications
The study is conducted till the year 2018, and data for the present period (post-2018) is excluded due to ongoing trade issues between the USA and oil-exporting countries such as Iran. The current COVID-19 outbreak has also put serious issues. Due to limited time and availability of standardized data, researchers have considered Sensex as equity index only, but for more generalized research outcome few other equity indexes could have been taken for study.
Originality/value
The study is completely original in nature and is an extensive study of the relationship between the crude oil price and Indian stock market with reference to causality between the variables.
... Capital Expenditure, [23,24] Dividend & Right Shares announcements has a positive impact on company's share prices. Even when top management does something which is not ethical also affects the stock market adversely [25]. stock market reacts positively and negatively after obtaining information from a newspaper as reader read and react accordingly [26]. ...
The series of debt default has started appearing in Indian markets recently such as DHFL debt crisis, Reliance Capital’s default, IL&FS debt crunch etc. The purpose of this paper is to observe the impact of debt default and other corporate announcements on the stock market as well as on the industry, i.e. recently happened event of Infrastructure Leasing& Financial Services (IL&FS) which defaulted in repaying the debt. The Corporate also faced other major changes in the management. The study is conducted on IL&FS three subsidiaries known as IL&FS Transportation Networks Limited, IL&FS Investment Managers Limited & IL&FS Engineering & Construction Company Limited. In this research paper, event study analysis is conducted in which abnormal and cumulative abnormal returns are calculated, t-test is applied by using single factor model and two way factor model to know and understand the significance of the event. In this study, test is applied on the historical prices of three subsidiaries of IL&FS which is listed on BSE.The research is showing a significant effect of the announcements regarding default in payment of debt and other events on stock prices, but the company’s stock performance not affecting the market and industry significantly which was observed through two way factor model. This study shows the impact of company announcement on the stock market and have not considered any other impact during that period therefore, confounding may exist.
... Only a few could say that there is no need for policymakers to listen to people's opinions on the management of natural resources, but the reality is that community opinions and participation is inevitable (Kerr et al., 2017;Liu et al., 2015;Nakhshina, 2016). A lesson that Tanzania can learn from international experience that was accounted as poor governance is that it's essential to involve citizens in decisionmaking processes (Bhattacharyya, 2007;Kunert et al., 2017;Moshiri et al., 2013). This can help to close the gap between expectations and real situation, which can reduce the possibility of conflicts occurrence (Bhattacharyya, 2007). ...
Purpose
This paper aims to analyze the context of community opinions and participation in the natural gas sector in developing countries, a case study of Tanzania. To achieve this purpose, the study pointed out six facts, namely, information on the natural gas sector; awareness of the natural gas-related policies; laws and regulations and the creation of employment opportunities; local experts in the natural gas sector; the use of natural gas revenues; and natural gas for poverty reduction and improvement of social well-being.
Design/methodology/approach
The study is a systematic review of the literature on community participation based on the relevant studies published between 2010 and 2018. A comprehensive literature review was carried out following the seven-step model whereby relevant themes from different potential bibliographic databases such as Google Scholar were systematically selected, compiled and analyzed using descriptive methods.
Findings
The study revealed that despite the various efforts made by the governments and other stakeholders to promote community participation, there is an inadequate level of community participation in the natural gas sector in developing countries. There are limited local experts for natural gas operations and low transparency on natural gas contracts, agreements and revenues. Therefore, there is the need to raise awareness for a highly informed society with a clear sense of ownership of the natural gas wealth among the local communities. Moreover, transparency and accountability are recommended for the sustainable natural gas sector development.
Originality/value
This paper offers new and current cross-sectoral inclusion, opinions, hopes and concerns of the community on the natural gas sector management in developing countries.
Purpose
The authors examine the short-term stock market reaction surrounding US layoffs during the coronavirus disease 2019 (COVID-19) period. The authors’ specific interest is on any changes that may be observed in US stock markets during the COVID-19 outbreak. This information will help us assess the extent to which policymakers adopted at time revenue and expenditures measures to minimize its negative impact.
Design/methodology/approach
The authors study the linkage between layoffs announced by firms and stock markets in US for the COVID-19 period between March 2020 and October 2020. This period shows important economic figures; a huge number of job cuts announced by blue-chip companies listed in the New York Stock Exchange (NYSE) due to widespread economic shutdowns. The authors examine whether and to what extent stock markets in US have reacted to layoff announcements during the COVID-19 pandemic using an event-study methodology.
Findings
The study’s results show that US layoffs during the pandemic did not cause any abnormalities on the stock returns, either positive or negative. Based on the mean-adjusted volume, the authors find that layoffs increase the stocks' trading volume, especially on the event date and the day following the event. US stocks become more volatile on the days following the event. Interestingly, on the event date, the authors find that stocks get the highest abnormal volatility; however, the result is statistically insignificant.
Practical implications
The authors suggest that layoffs announcements follow the business cycle quite closely in most industries. The study’s results have implications for investors, regulators and policymakers as they permit to examine the effectiveness of the measures adopted.
Social implications
The study’s results show that policymakers reduced uncertainty implementing intensive measures quickly and should follow similar policy in the future pandemic and/or unexpected events.
Originality/value
This paper contributes to the literature in two directions: First, to the best of the authors’ knowledge this is the first study that provides empirical evidence and assesses the extent to which a major global shock such as the COVID-19 pandemic may have altered the reaction of US stock markets to layoff announcements. Second, this is the first study on this topic that examines volume and volatility abnormalities, while the authors check the robustness of the findings with different methods to calculate abnormal returns.
Publicly traded companies downsize via plant closings and layoffs to reduce expenses, improve financial results, and ultimately increase the firm's value. Quite often, however, the stock market reaction is neutral, or even negative, to news of downsizing. Although this result has been shown in many prior studies, these studies fail to observe stock market returns beyond ten days after the news event. Furthermore, they tend to rely on national news outlets, which are biased towards larger companies. Using a sample of 574 downsizing events identified through Worker Adjustment and Retraining Notification (WARN) notices and Wall Street Journal articles, we extend the observation window to a year following the layoff event. As the first study to use this richer dataset for studying stock returns, we document a positive relationship between stock returns and closing a plant during a layoff. The stock prices of the firms in the study that closed plants outperformed comparable firms by 7.9% in the year following the event. In contrast, the returns for firms with just a layoff were indifferent from their benchmarks. Contrary to prior work in this area, we are the first to document a positive relationship between the number of employees affected by the event and stock returns over the following year. In sum, our work documents the importance of including WARN notices when studying downsizing events to address the size bias associated with using media sources alone.
Purpose
This paper aims to investigate the new geothermal law and its implications for geothermal development in Indonesia.
Design/methodology/approach
This paper investigates new geothermal law and its implications for geothermal development in Indonesia by using comparable law article to discuss this development. All the data are obtained from literature studies based on the history and background, ownership and access, investment and risks, electricity market and re-policies, environmental regulations and community participation around the geothermal resources.
Findings
Geothermal industries in Indonesia need assurance and clear legal basis to be developed. Geothermal investors, whether foreign or local, need policy assurance and good business structures that can create a secure investment environment. Furthermore, a good relationship with international cooperation agency needs to be improved to establish knowledge transfer regarding technologies and information about exploration, production and geothermal development. This is essential to further develop the geothermal utilization and prepare Indonesia to be the country with the biggest reduction in CO2 emission in 2025. New geothermal regulation (Law No.21 Year 2014) has facilitated the geothermal activities. After the issuance of this regulation, the activities can be done at conserved, production and conservation forest. Moreover, the public service agency (BLU) or state-owned enterprise (BUMN) assignment scheme can boost the geothermal industries development.
Originality/value
Indonesia has huge geothermal resources because of its geological condition that is located at volcanoes path, also known as “Ring of Fire”. According to 2017 ESDM data, Indonesia’s geothermal potentials are almost 30 GW and are distributed to 331 potential points. However, only 5 per cent of those potentials (1,643.5 MW) have been utilized to date. The huge potentials can be utilized optimally to support the Government’s plan in achieving the energy security. Therefore, policies that regulate geothermal utilization is strategically essential for Indonesia’s future.
China's PV industry has developed rapidly in recent years due to the dramatic demand from the world market. In contrast, until 2010 China's domestic PV market has been very small due to lack of sufficient incentives in the country to promote domestic PV deployment However, since early 2009 many incentives have been implemented in China. The paper makes an analysis on China's solar PV incentive policies, particularly the national FIT scheme. Policy recommendations are made with regard to the promotion of the domestic solar PV market, including the construction of an effective national FIT scheme, the imposition of renewable portfolio system as well as the establishment of sound technical and administration standards for the grid-connection of PV systems. The paper contributes to the academic literature over China's solar PV power policy.
In this study, we analyze the effect of layoff announcements on the market's valuation of firms. The event study methodology is applied to a sample of 214 announcements of layoffs made by major Canadian firms that traded on the Toronto Stock Exchange over the period 1982-1989. The main results are: (1) The market responds to the news of layoffs in a negative fashion, lowering the value of firms that announce layoffs, and (2) almost all of the negative response occurs on the day of the announcement, suggesting that the market is not able to fully anticipate the new information, but that it responds to it very quickly.
The effect of layoff announcements on the shareholder returns of 154 firms that announced layoffs in 1993-1994 was examined with event study methodology. As expected, the returns to these firms were negative. Further, the returns to the firms that announced layoffs for “reactive” reasons were more negative than the returns to the firms that announced layoffs for “proactive” reasons. The effect of employment guarantee announcements on the shareholder returns of 13 firms that announced employment guarantees in 1993-1994 and on the returns of 63 firms that made similar announcements throughout the 1990?s was examined. Returns of these samples also responded negatively to the announcements. When the response to the two types of announcements was compared, however, there was no clear conclusion regarding which type of announcement drew a more negative response.
This study examined the effect of layoffannouncements on shareholder wealth. Second, itfurther discusses the social implications oflayoffs and the extent to which investorreactions towards layoffs may have changed overtime. Details of layoff announcements for UKlisted companies were gathered for the periods1980 to 1984 and 1990 to 1995 inclusive.Comparative to prior U.S. findings, the resultsshow that UK investors do respond negatively toannouncements categorised as reactive. Twofindings not established by prior researchwere: (1) UK investor reactions appear to bemuch more sensitive to layoffs in the 1990''s asopposed to the 1980s, and (2) UK investorsappeared increasingly sensitive toward layoffscompared to their US counterparts.
Trotz der Vielzahl internationaler Markterschließungsmaßnahmen von Telekommunikationskonzernen im Mobilfunk in den letzten 15 Jahren, liegen kaum Befunde zu Auswirkungen solcher Schritte auf Aktienkurse dieser Unternehmen sowie zur Erklärung von Unterschieden zwischen den ereignisbedingten Kursreaktionen in Abhängigkeit von den gewählten Markteintrittsformen und zeitbezogenen Merkmalen der Internationalisierung vor. In der eigenen Arbeit werden deshalb Aktienmarktreaktionen für eine Stichprobe von 148, zwischen Dezember 1989 und Dezember 2004 von 29 Mobilfunknetzbetreibern angekündigten, internationalen Markterschließungsmaßnahmen untersucht. Expansionsschritte in ausländische Mobilfunkmärkte werden vom Kapitalmarkt im Durchschnitt als wertneutral für den internationalisierenden Telekommunikationskonzern eingestuft. Die Varianz der kumulierten abnormalen Renditen (KAR) ist jedoch groß. Zwischen internationalen Vertragskooperationen, Beteiligungen an bestehenden und Neugründungen von Mobilfunknetzbetreibern unterscheiden sich die KAR-Durchschnittswerte deutlich: Internationale vertragsbasierte Kooperationen werden vom Aktienmarkt im Zeitfenster von 10 Tagen vor bis 5 Tage nach deren Ankündigungsdatum signifikant negativ und schlechter als Beteiligungen an bestehenden Mobilfunknetzbetreibern im Ausland bewertet, deren durchschnittliche KAR ihrerseits signifikant unter dem KAR-Mittelwert von internationalen Neugründungen von Mobilfunknetzbetreibern liegt. Eine positivere Kapitalmarktreaktion ist bei internationalen Markterschließungsmaßnahmen von Mobilfunknetzbetreibern festzustellen, wenn sie von weiteren Auslandsexpansionsschritten innerhalb der letzten zwei Jahre flankiert werden und wenn sie zu einem Zeitpunkt erfolgen, an dem im Zielland bereits länger (digitale) Mobilfunkdienste vermarktet werden.
Using an event study methodology, the authors investigate whether human resource decisions of firms (such as decisions concerning compensation and benefits or staffing) announced in the Wall Street Journal in 1980 and 1987 discernibly affected either the level or variation of abnormal total shareholder return. They find no consistent pattern of increased or decreased valuation in response to any of five categories of HR announcements, even after controlling for the likely effect of such announcements on total compensation costs. On the other hand, announcements of permanent staff reductions and shutdowns or relocations were associated with significant increases in the variation of abnormal total shareholder return around the announcement date, which indicates that HR decisions in those two categories do affect shareholders' predictions of firms' performance. (Abstract courtesy JSTOR.)
The present study focusses on the controversial issues between human resource management and international capital markets. It analyzes the impact of layoff announcements on the market value of the global airline sector while utilizing the event study methodology. Between 2003 and 2012, 84 redundancy plans were announced by 22 airlines. The empirical evidence underlines that there is no generalization of the capital market’s reaction to these announcements; it is rather the very specific layoff motive that drives the market perception. In particular, proactive measures with a focus on restructuring show a positive impact on the shareholder value.
Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used 111 event studies to measure security price performance. Abnormal performance is Introduced into this data. We find that a simple methodology based on the market model performs well under a wide variety of conditions. In some situations, even simpler methods which do not explicitly adjust for marketwide factors or for risk perform no worse than the market model. We also show how misuse of any of the methodologies can result in false inferences about the presence of abnormal performance.
Purpose
– The purpose of this paper is to determine the impact of political risk on the German solar energy industry. The authors analyze the period from 2006 to mid-2011, when the technological development of this sector was remarkable while the whole industry is depending on political support and subsidies.
Design/methodology/approach
– The authors apply an EGARCH model assessing potential changes in conditional volatility response of solar industry stock returns following political risk events.
Findings
– The results document major changes in political support of the solar industry drive capital market risk. Whereby favorable political news significantly decrease volatility response and unfavorable political news do not affect volatility response. Moreover, the authors find that the volatility response varies with the exposure to political risk. Companies with higher exposure to political risk show more significant volatility response.
Practical implications
– Political risk affects the cost of capital of companies in this sector. Thus, managers are able to time equity measures in a way that they can determine periods when the investor's required return is low due to a reduced risk premium. The authors suggest risk reducing public policy facilitates investments in those industries and thus fosters the development and diffusion of immature technologies.
Originality/value
– The paper helps policy makers, managers, and investors to assess the impact of political risk on the overall risk of the German solar energy sector and in a broader view of immature or high-tech industries that depend crucially on governmental support.
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 period.
Im vorliegenden Beitrag werden 136 Ankündigungen von Personalabbauprogrammen börsennotierter deutscher Unternehmen zwischen 2000 und 2009 im Hinblick auf deren Einfluss auf den Shareholder Value mittels einer Ereignisstudie analysiert. Die Ergebnisse zeigen eine geringe durchschnittliche Reaktion des Aktienkurses, wobei jedoch die Varianz der Kapitalmarktreaktionen stark ausgeprägt ist. Zur Erklärung dieser Varianz werden als zentrale Merkmale von Personalabbauprogrammen die Motive für den Stellenabbau, der Umfang der Personalreduzierung sowie die Freiwilligkeit der Umsetzung herangezogen. Die empirische Analyse zeigt für Motive, welche als Reaktion auf eine unzureichende Vergangenheitsentwicklung aufgefasst werden, einen negativen Effekt auf den Shareholder Value. Dagegen ist für Personalabbauprogramme, die durch effizienzsteigernde Motive begründet werden (Kostensenkungsbestrebungen), ein positiver Einfluss zu beobachten. Der Umfang der Personalreduzierung wirkt sich tendenziell negativ auf den Unternehmenswert aus. Personalabbauprogramme, die den Mitarbeitern die Entscheidung überlassen, das Unternehmen freiwillig zu verlassen, beeinflussen den Shareholder Value dagegen deutlich positiv. Darüber hinaus werden ein positiver Zusammenhang zur Humankapitalintensität sowie ein negativer Zusammenhang für die Unternehmen des verarbeitenden Gewerbes und den Verschuldungsgrad beobachtet. Der Erklärungsgehalt des Regressionsmodells übertrifft denjenigen angloamerikanischer Studien.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
The comparison of two treatments generally falls into one of the following two categories: (a) we may have a number of replications for each of the two treatments, which are unpaired, or (b) we may have a number of paired comparisons leading to a series of differences, some of which may be positive and some negative. The appropriate methods for testing the significance of the differences of the means in these two cases are described in most of the textbooks on statistical methods.
This study examines the effects of downsizing actions and implementation strategies on market performance. While downsizing actions reduce costs, they also produce a loss of valuable human capital that can exceed the benefits resulting from the lay-offs. In support of this argument, the results showed that downsizing had a negative effect on market returns and the effects grow increasingly negative with larger downsizing actions. However, the market reacts more positively to downsizing actions when reallocation strategies are used and to large downsizing actions when disengagement incentives are applied. The results of this research suggest the importance of carefully managing valuable resources to create positive returns. Copyright © 2004 John Wiley & Sons, Ltd.
Downsizing and layoffs are an important mechanism for U.S. firms to cope with their strategic and economic environment. In contrast, the Japanese tradition of lifetime employment limits the ability of firms to employ layoffs as a strategic measure, relegating its use to conditions of financial distress. This paper provides the first comparison of layoffs in Japan and the United States and examines stock price reactions to layoff announcements in each country from 1990 to 1994. Agency theory and Aoki's cooperative game theory are employed to discuss differences in the governance structures of U.S. and Japanese firms and their implication for stock price reactions. Results show that layoff announcements trigger negative returns for both U.S. and Japanese firms. Specifically, layoff announcements of U.S. firms are associated with a negative 1.78 percent abnormal return, while layoff announcements for Japanese firms are associated with a negative 0.56 percent abnormal return. To better understand the impact of layoffs, this study examines the relationships between stock price reactions and various layoff characteristics (such as whether the layoff is proactive or reactive or whether the layoff is the first in the industry). Implications of the findings are discussed. © 1997 John Wiley & Sons, Ltd.
This paper reviews evidence from 32 event studies on effects of an announcement of a large scale reduction in work force (RIF) program on the share price/equity value of stock-quoted corporations and on factors suited to explain RIF impact variations. All in all the empirical data indicate that on average (Anglosaxon) capital markets do not respond to RIF notifications with significantly positive abnormal returns. Rather, they tend to display negative abnormal share price consequences, i.e. RIF announcements - as typically shaped by corporations - are likely to destroy shareholder value. On the whole, extant work suggests that abnormal returns following RIF disclosures tend to be worse if (1) the stated RIF reason is declining demand, (2) the reduction to total staff ratio is high and (3) the reduction is based mainly on layoffs instead of voluntary separations. Further methodologically improved research is required to explore the extent to which the present review's conclusions hold in German-speaking countries.
This paper presents a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic. This estimator does not depend on a formal model of the structure of the heteroskedasticity. By comparing the elements of the new estimator to those of the usual covariance estimator, one obtains a direct test for heteroskedasticity, since in the absence of heteroskedasticity, the two estimators will be approximately equal, but will generally diverge otherwise. The test has an appealing least squares interpretation.
Let $x$ and $y$ be two random variables with continuous cumulative distribution functions $f$ and $g$. A statistic $U$ depending on the relative ranks of the $x$'s and $y$'s is proposed for testing the hypothesis $f = g$. Wilcoxon proposed an equivalent test in the Biometrics Bulletin, December, 1945, but gave only a few points of the distribution of his statistic. Under the hypothesis $f = g$ the probability of obtaining a given $U$ in a sample of $n x's$ and $m y's$ is the solution of a certain recurrence relation involving $n$ and $m$. Using this recurrence relation tables have been computed giving the probability of $U$ for samples up to $n = m = 8$. At this point the distribution is almost normal. From the recurrence relation explicit expressions for the mean, variance, and fourth moment are obtained. The 2rth moment is shown to have a certain form which enabled us to prove that the limit distribution is normal if $m, n$ go to infinity in any arbitrary manner. The test is shown to be consistent with respect to the class of alternatives $f(x) > g(x)$ for every $x$.
We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of 4273 such announcements in 1160 large firms during the 1970-99 period collected from the Wall Street Journal. We note that the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction positive) of the distribution of stock market reactions, measured by the cumulative excess returns (CER) of firms' stock prices over a 3-day event window centered on the announcement date, as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We estimate multivariate regression models of the CER controlling for the stated reason for the announced layoff, industry, and other characteristics of the announced layoff. We find that almost none of the decline in the negative average stock price reaction between the 1970s and 1990s can be explained by these factors.
Employing traditional event study methodology we examine the market reaction to layoff announcements of firms listed on the German stock market. We contribute to the international literature in this field with two major results. First, unlike anecdotal and similar to international evidence we report a negative and significant abnormal rate of return of - 0.37 percent on the announcement day. Further, we find that the reason for the layoff announcement plays a decisive role in the revaluation process. On the one hand, stocks of firms that announce layoffs as a reaction to declining market conditions are associated with a more intense negative market response. On the other hand, even stocks of firms that intend to enhance their profitability by means of layoffs do not show a significant positive reaction. Copyright 2009 die Autoren Journal compilation 2009, Verein für Socialpolitik und Blackwell Publishing Ltd.
Announcing a layoff decision could trigger either an increase or decrease in firm value, depending upon whether adverse market conditions or efficiency improvement are motivating it. Layoff announcements often contain information that indicates the motivation. This article finds that the layoff announcement is a useful signal for investors. There are significantly positive (negative) abnormal stock returns around the announcement date for firms that cite efficiency improvements (demand declines) as the reason for the layoffs.
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. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.
This paper is the first to look directly at the reaction of the London market to company announcements of changes to employee count. Using event study methodology, we examine market reactions to 54 redundancy announcements during the period 1990-1999 and 52 announcements of new jobs during the period 1993-1999. In line with previous US studies we find that market reaction, measured by cumulative abnormal returns, is negative before the day of redundancy announcement. The actual redundancy announcement is greeted positively by the market when measured in terms of the mean, but negatively when measured in terms of the median. Thus, in a minority of cases the announcements are seen as value enhancing. The market reacts positively before new job announcements and this positive reaction is highly significant when the announcement is made. The results suggest that new job announcements contain value-relevant information for the market. Potential causal factors other than announcement size are not significant. Copyright Blackwell Publishers Ltd 2002.
Two hypotheses are considered to explain employee layoffs by corporations: (1) the declining investment opportunities hypothesis; and (2) the efficiency hypothesis. The stock market response to employee layoff announcements is estimated to be negative, which is consistent with the declining investment opportunities hypothesis as opposed to the efficiency hypothesis. Large, permanent, and unanticipated layoffs are associated with higher market reaction relative to small, temporary, and anticipated layoffs. A significant difference exists between industry type and for the stated reason of the layoff. Corporate layoffs per se increased the efficiency of the firm, as evidenced by a significant increase in return on equity and net income to employee in the post-announcement relative to the pre-announcement period. Copyright Blackwell Publishers Ltd 1998.
Many authors have identified the hazards of ignoring event-induced variance in event studies. To determine the practical extent of the problem, we simulate an event with stochastic effects. We find that when an event causes even minor increases in variance, the most commonly-used methods reject the null hypothesis of zero average abnormal return too frequently when it is true, although they are reasonably powerful when it is false. We demonstrate that a simple adjustment to the cross-sectional techniques produces appropriate rejection rates when the null is true and equally powerful tests when it is false.
Event studies depend critically on correct specification of the counterfactual, normal returns to corporate assets. Model selection tests for a sample of FT-SE 100 UK companies reject two widely used non-regression models against the principal regression-based alternative, the market model.
Empirical studies have generally reported insignificant market reactions to employee downsizing. In an effort to reconcile ongoing layoffs with inconclusive empirical results, we segregated our sample by downsizing strategy and examined employee layoff announcements made by "Fortune 500" firms during the 1993-1995 period. Unlike previous studies, we find a positive market reaction for layoff announcements related to revenue refocusing. Market reaction with respect to layoff announcements involving cost cutting was insignificant while weak evidence was found for a negative market reaction to layoffs related to plant closings. Consistent with the market reaction, post announcement analysis revealed that downsizing in conjunction with revenue refocusing (plant closing) improved (reduced) firm financial performance and that revenue refocusing firms significantly outperformed cost cutting and plant closing firms over the three-year post announcement period. Copyright Blackwell Publishers Ltd 2002.
Market perception of layoffs: Investor re-evaluation”, unpublished manuscript
- L Clarenbach
- W Davies
The adjustment of stock prices to new information
- Judge G.G.
Using daily stock returns – the case of event studies
Hanwha Q CELLS stellt deutsche Standorte neu auf
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Trends in photovoltaic applications: survey report of selected IEA countries between 1992 and 2009
- International Energy Agency
Layoffs, top executive pay, and firm performance”, Faculty Publications - Human Resource Studies
- K Hallock
UK’s stock market reactions to layoff announcements
- J Vu
BMW bestätigt Abbau von 8 100 Stellen
- Handelsblatt