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Layoffs, Top Executive Pay, and Firm Performance

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Author Info
Hallock, Kevin F

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Abstract

This paper examines the connection between layoffs, executive pay, and stock prices. Firms that announce layoffs in the previous year pay their CEOs more, and give their CEOs larger percentage raises than firms which do not have at least one layoff announcement in the previous year. However, the likelihood of announcing a layoff varies dramatically along other dimensions, for example firm size, which are also correlated with CEO pay. Once firm-specific fixed effects are controlled for, the CEO pay premium for laying off workers disappears. In addition, there is a small negative share price reaction to layoff announcements. Copyright 1998 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 88 (1998)
Issue (Month): 4 (September)
Pages: 711-23
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Handle: RePEc:aea:aecrev:v:88:y:1998:i:4:p:711-23

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  1. Kevin Hallock, 1999. "Changing Stock Market Response to Announcement of Job Loss: Evidence from 1970-1997," Working Papers 793, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  2. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall. [Downloadable!] (restricted)
    Other versions:
  3. Henry S. Farber & Kevin F. Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," NBER Working Papers 7295, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Jérôme Hubler & Pierre-Xavier Meschi & Géraldine Schmidt, 2004. "Annonces de suppressions d’emplois et valeur boursière de l’entreprise," Revue Finance Contrôle Stratégie, Editions Economica, vol. 7(4), pages 107-142, December. [Downloadable!]
  5. Steven G. Allen & Robert L. Clark & Sylvester J. Schieber, 1999. "Has Job Security Vanished in Large Corporations?," NBER Working Papers 6966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hayes, Rachel M. & Oyer, Paul & Schaefer, Scott, 2005. "Co-worker Complementarity and the Stability of Top Management Teams," Research Papers 1846r, Stanford University, Graduate School of Business. [Downloadable!]
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  8. Audretsch, David B & Lehmann, Erik, 2002. "Does the New Economy Need New Governance? Ownership, Knowledge and Performance," CEPR Discussion Papers 3626, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Bhagwan Chowdhry & Mark Garmaise, 2003. "Organization Capital and Intrafirm Communication," University of California at Los Angeles, Anderson Graduate School of Management 1108, Anderson Graduate School of Management, UCLA. [Downloadable!]
  10. DEGEORGE, François & JENTER, Dirk & MOEL, Alberto & TUFANO, Peter, 2000. "Selling company shares to reluctant employees : France Télécom's experience," Les Cahiers de Recherche 703, HEC Paris. [Downloadable!]
    Other versions:
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