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The Effects of Downsizing on Operating Performance

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  • Espahbodi, Reza
  • John, Teresa A
  • Vasudevan, Gopala

Abstract

We examine the performance of 118 firms that downsized between 1989-93. We find that downsizing firms experience declines in operating performance prior to the downsizing announcement. Operating performance improves significantly following the downsizing. These firms are able to reduce the cost of sales, labor cost, capital expenditures and R&D expenditures. We also find that firms that perform poorly in their industries prior to the downsizing and have increases in assets following the downsizing have larger improvements in performance. There is some evidence that the improvements are greater for firms that increase their focus. Copyright 2000 by Kluwer Academic Publishers

Suggested Citation

  • Espahbodi, Reza & John, Teresa A & Vasudevan, Gopala, 2000. "The Effects of Downsizing on Operating Performance," Review of Quantitative Finance and Accounting, Springer, vol. 15(2), pages 107-126, September.
    • Handle: RePEc:kap:rqfnac:v:15:y:2000:i:2:p:107-26
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    Citations

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    Cited by:

    1. Marie-Anne Verdier, 2014. "Quelles Strategies De Diffusion Pour Les Annonces De Reduction D'Effectifs ? Le Cas Des Entreprises Francaises Cotees," Post-Print hal-01899749, HAL.
    2. Thomas J. Lopez & Craig A. Sisneros & Trevor Sorensen, 2020. "The market pricing of negative special items through time: an unintended consequence of regulation change?," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 753-777, February.
    3. Panos Desyllas, 2009. "Improving performance through vertical disintegration: evidence from UK manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 307-324.
    4. Friebel, Guido & Heinz, Matthias & Zubanov, Nick, 2016. "The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain," IZA Discussion Papers 9739, Institute of Labor Economics (IZA).
    5. José Allouche & Patrice Laroche & Florent Noël, 2008. "Restructurations et performances de l’entreprise:une méta-analyse," Revue Finance Contrôle Stratégie, revues.org, vol. 11(2), pages 105-146, June.
    6. Dong, Xiao-yuan & Xu, Lixin Colin, 2009. "Labor restructuring in China: Toward a functioning labor market," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 287-305, June.
    7. Schulz, Ann-Christine & Johann, Sarah, 2018. "Downsizing and the fragility of corporate reputation: An analysis of the impact of contextual factors," Scandinavian Journal of Management, Elsevier, vol. 34(1), pages 40-50.
    8. Wulung Li & Ramachandran Natarajan & Yan Zhao & Kenneth Zheng, 2021. "The effect of management control mechanisms through risk-taking incentives on asymmetric cost behavior," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 219-243, January.
    9. James P. Guthrie & Deepak K. Datta, 2008. "Dumb and Dumber: The Impact of Downsizing on Firm Performance as Moderated by Industry Conditions," Organization Science, INFORMS, vol. 19(1), pages 108-123, February.
    10. Rama, Martin & Newman, Constance, 2002. "Downsizing and productivity gains in the public and private sectors of Colombia," Policy Research Working Paper Series 2770, The World Bank.
    11. Matthias Brauer & Tomi Laamanen, 2014. "Workforce Downsizing and Firm Performance: An Organizational Routine Perspective," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1311-1333, December.
    12. Verdier, Marie-Anne & Boutant Lapeyre, Jennifer, 2023. "The myth of workforce reduction efficiency: The performativity of accounting language," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 90(C).
    13. Franco GANDOLFI & Magnus HANSSON, 2015. "A Global Perspective on the Non-Financial Consequences of Downsizing," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 16(2), pages 185-204, May.
    14. Muñoz-Bullón, Fernando & Sánchez-Bueno, María José, 2008. "Does downsizing improve organizational performance? An analysis of Spanish manufacturing firms," DEE - Working Papers. Business Economics. WB wb083007, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    15. Mary Hill & Peter Johnson & Kelvin Liu & Thomas Lopez, 2015. "Operational restructurings: where’s the beef?," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 721-755, November.

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