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Market reactions to layoff announcements during crises: Examining impacts and conditioners

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... Still, the Vietnamese Dong (2.82 %) and Papua New Guinean (0.47 %) were identified as almost resilient or least impacted currencies in APEC during COVID-19. Numerous studies (Ashraf & Goodell, 2022;Yarovaya et al., 2022;Goodell et al., 2023;Kumar et al., 2023;Pandey and Kumari, 2021) indicated that COVID-19 impacted several economies, leading to market reactions based on the different announcements. ...
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By combining TVP-VAR Model (time domain connectedness) and TVP-VAR based Baruník and Kˇrehlík model (frequency domain connectedness), this study analyzes the impact of the COVID-19 pandemic, the Russia-Ukraine war, and the Silicon Valley Bank (SVB) collapse on the Asia Pacific Economic Cooperation (APEC) forum currency exchange rates. The results reveal that APEC currencies have time-varying effects (tend to cluster in appreciation and depreciation patterns in both the short and long term) and have generated higher total return spillover during COVID-19 (in the time domain) than the Russia-Ukraine war and SVB collapse. During COVID-19 (87.18 %) (total return spillover), impacts were more severe than the Russia-Ukraine crisis (79.49 %) and the Silicon Valley Bank collapse (75.55 %). Moreover, the South Korean won, Thai Bhat and Australian Dollar are identified as consistent shock transmitters, and Malaysian Ringgit, Philippine peso, Indonesian Rupiah, and Chinese Yuan as consistent shock receivers in the time domain. The findings have substantial repercussions for financial regulators and investors.
... We adopt the Brown and Warner (1985) ESM with the market model (MM) estimation. The MM generates results like complex models (Dyckman et al., 1984;Kumar et al., 2023). The event date is September 26, 2022. ...
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Purpose This study aims to comprehensively understand market reactions to Bursa Malaysia's announcement on mandatory climate-change-related disclosures, exploring sector-specific dynamics and cross-sectional influences. Design/methodology/approach The study uses event study methodology on 412 listed firms to analyze market reactions around the announcement date. The sector-wise analysis further delves into variations across industries. Cross-sectional analysis explores the significance of environmental, social and governance (ESG) scores and firm controls in explaining the differences across sample firms. Findings The event study reveals initial negative market reactions on the event day, with a subsequent shift from positive to negative cumulative impact, indicating the evolving nature of investor sentiment. The sector-wise analysis highlights heterogeneous effects, emphasizing the need for tailored strategies based on industry-specific characteristics. The cross-sectional findings underscore the growing importance of ESG factors, with firm size and performance influencing market reactions. Financial leverage and liquidity prove insufficient to explain cumulative abnormal return (CAR) differences, while past returns and volatility are influential technical factors. Practical implications The economic significance of the results indicates a growing trend where investors prioritize companies with more substantial ESG scores, potentially driving shifts in corporate strategies toward sustainability. Better ESG performance signifies improved risk management and long-term resilience in the face of market dynamics. Regulatory bodies may respond by enhancing ESG reporting requirements, while financial institutions integrate ESG factors into their models, emphasizing the benefits of sustainability and financial performance. Originality/value This research contributes to the existing literature by providing a nuanced analysis of market responses to climate-related disclosures, incorporating sector-specific dynamics and cross-sectional influences. The findings offer valuable insights for businesses and policymakers, emphasizing the need for tailored approaches to climate-related disclosure management.
... During this time, they were hit by a series of different events, causing large fluctuations in their corresponding stock prices over time, including the US-China trade war, the Covid-19 pandemic, the petroleum oversupply due to the shale revolution [120,121], the Russia-Saudi Arabia price war [122,123] and the Ukraine-Russia war [65]. • Technology Sector: Technology stocks are grouped into several communities and reveal herding behavior in three sub-periods, including Pre-Covid-19 (coinciding with the US-China trade war [124][125][126]126]), Covid-19 pandemic (coinciding with the downturn time caused by the pandemic followed by a global economic recession) and the Ukraine-Russia conflict (coinciding with the time when Technology companies were laying off workers [127][128][129] followed by the AI boom that gave an impetus to the Technology sector [130,131]). • Healthcare Sector: Herding behavior was found in most healthcare stocks and ETFs during three sub-periods: ...
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Herding behavior has become a familiar phenomenon to investors, carrying the potential danger of both undervaluing and overvaluing assets, while also threatening market stability. This study contributes to the literature on herding behavior by using a more recent dataset to cover the most impactful events of recent years. To our knowledge, this is the first study examining herding behavior across three different types of investment vehicle. Furthermore, this is also the first study observing herding at a community (subset) level. Specifically, we first explore this phenomenon in each separate type of investment vehicle, namely stocks, US ETFs and cryptocurrencies, using the widely recognized Cross Sectional Absolute Deviation (CSAD) model. We find similar herding patterns between stocks and US ETFs, while these traditional assets reveal a distinction from cryptocurrencies. Subsequently, the same experiment is implemented on a combination of all three investment vehicle types. For a deeper investigation, we adopt graph-based techniques such as Minimum Spanning Tree (MST) and Louvain community detection to partition the given combination into smaller subsets whose assets are most similar to each other, then seek to detect the herding behavior on each subset. We find that herding behavior exists at all times across all types of investment vehicle at a subset level, although the herding might not manifest at the superset level. Additionally, this herding behavior tends to stem from specific events that solely impact that subset of assets. Given these findings, investors can construct an appropriate investment strategy composed of their choice of investment vehicles they are interested in.
... However, Fama's et al. (1969) efficient market hypothesis argues that efficient stock markets incorporate all relevant information, negating the possibility of abnormal gains. Concomitantly, recent studies suggest that stock markets do over (under)-react to significant news events (Arcuri, Gandolfi, & Russo, 2023;Boussaidi & Dridi, 2020;Kumar, Pandey, & Goodell, 2023;McMenamin, Breen, & Muñoz-Portillo, 2016). Additionally, studies on the impact of the Russia-Ukraine war provide evidence on heterogenous responses to different asset classes in different markets Costola & Lorusso, 2022;Lyócsa & Plíhal, 2022). ...
... Additionally, stocks with zero trading volume indicating frequent zero returns have also been excluded.5 Exhaustive literature support using the event study method to examine the short-term reaction of stock returns to various events(Abbassi, Boubaker, Manita, & Pandey, 2023;Goodell & Huynh, 2020;Jin, Lu, & Zhang, 2022;Kumar, Pandey, & Goodell, 2023;Li, Chen, & Dong, 2021;Mansley, Wang, Weng, & Zhang, 2023;Nerlinger & Utz, 2022;Pandey, Hassan, Kumari, & Hasan, 2023, Prabu A et al., 2016, 2024Z. Wang, Dong, & Liu, 2022;Yousaf, Riaz, & Goodell, 2023;. ...
... From the reviews, there were several indications emphasizing the changes of the human capital or human values of firms during economic crisis compared to non-crisis situations in the tourism sector and other industries [39,40]. The negative changes of human capital in the crisis period mainly came from an employee layoff [41,42], as well as a significant decline in the wages of workers [43,44]. Therefore, the findings presented above support the development of the third hypothesis (H3) of our study. ...
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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.
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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.
Article
Lawrence R. Klein pioneered the work on aggregation, in particular in production functions, in the 1940s. He paved the way for researchers to establish the conditions under which a series of micro production functions can be aggregated so as to yield an aggregate production function. This work is fundamental in order to establish the legitimacy of theoretical (neoclassical) growth models and empirical work in this area (e.g., growth accounting exercises, econometric estimation of aggregate production functions). This is because these models depend on the assumption that the technology of an economy can be represented by an aggregate production function, i.e., that the aggregate production function exists. However, without proper aggregation one cannot interpret the properties an aggregate production function. The aggregation literature showed that the conditions under which micro production functions can be aggregated so as to yield an aggregate production function are so stringent that it is difficult to believe that actual economies can satisfy them. These results question the legitimacy of growth models and their policy implications. Scientifi c work cannot proceed as if production functions existed. For this reason, the profession should pause before continuing to do theoretical and applied work with no sound foundations and dedicate some time to studying other approaches to estimating the impact of economic policies in order to understand what questions can legitimately be posed to the empirical aggregate data. Lawrence R. Klein fue uno de los pioneros del campo de la agregaci�n, en particular en el �rea de las funciones de producci�n, durante la d�cada de los 40. Sus contribuciones ayudaron a defi nir el problema de la agregaci�n para que investigadores posteriores establecieran formalmente las condiciones formales bajo las que funciones de producci�n microecon�micas con propiedades neocl�sicas pudieran ser agregadas con el fi n de generar una funci�n
Article
We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development (R&D) expenditures by a significant amount. We find consistent evidence of a misreaction, as manifested in the significantly positive abnormal stock returns that our sample firms' shareholders experience following these increases. We also find consistent evidence that our sample firms experience significantly positive long-term abnormal operating performance following their R&D increases. Our findings suggest that R&D increases are beneficial investments, and that the market is slow to recognize the extent of this benefit (consistent with investor underreaction). Copyright 2004 by The American Finance Association.
Article
The authors study whether the behavior of stock prices, in relation to size and book-to-market equity (BE/ME), reflects the behavior of earnings. Consistent with rational pricing, high BE/ME signals persistent poor earnings and low BE/ME signals strong earnings. Moreover, stock prices forecast the reversion of earnings growth observed after firms are ranked on size and BE/ME. Finally, there are market, size, and BE/ME factors in earnings like those in returns. The market and size factors in earnings help explain those in returns but the authors find no link between BE/ME factors in earnings and returns. Copyright 1995 by American Finance Association.
Financial constraints, debt capacity, and the cross-section of stock returns
  • Hahn