Announced layoffs: Their effect on corporate financial performance

Abstract

Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal andeffectiveresponse. In this study, evidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five-year period—two years prior to the announced layoff, the year of the layoff announcement, and two years following it. Contrary to expectations, the results indicate thatfinancial performance worsened, rather than improved, following announced layoffs. Strategic and human resource implications for the management of corporate downsizing are provided.