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Employee layoff under different modes of restructuring: exit, downsizing or relocation

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  • Kristien Coucke
  • Enrico Pennings
  • Leo Sleuwaegen

Abstract

Pressured by globalizing economies and growing international competition, an increasing number of firms are forced to rationalize productive operations. Especially poorly performing firms need to improve their profitability through downsizing or relocating their operations, which in many cases causes collective employee layoffs. This article adds to the emergent literature on the consequences of downsizing by looking into the determinants of collective employee layoffs. Based on a unique sample of Belgian firms reporting collective layoffs this article analyzes the firm's decision to dismiss all employees (exit), a significant proportion of its employees without creating new employment elsewhere (downsizing), or to move production abroad (international relocation). We theoretically derive the conditions under which a firm prefers one strategy to another. The empirical results confirm that relocating firms are most profitable among the restructuring firms, have invested more in the recent past, operate in sectors with significant economies of scale and belong more often to a multinational group than firms opting for downsizing or exit. Downsizing firms are more capital intensive than relocating firms, while exiting firms are less profitable, smaller, younger, and more labor intensive than downsizing or relocating firms. Copyright 2007 , Oxford University Press.

Suggested Citation

  • Kristien Coucke & Enrico Pennings & Leo Sleuwaegen, 2007. "Employee layoff under different modes of restructuring: exit, downsizing or relocation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(2), pages 161-182, April.
  • Handle: RePEc:oup:indcch:v:16:y:2007:i:2:p:161-182
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    File URL: http://hdl.handle.net/10.1093/icc/dtm002
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    Citations

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    Cited by:

    1. Lars Schweizer & Andreas Nienhaus, 2017. "Corporate distress and turnaround: integrating the literature and directing future research," Business Research, Springer;German Academic Association for Business Research, vol. 10(1), pages 3-47, June.
    2. Italo Colantone & Kristien Coucke & Leo Sleuwaegen, 2015. "Low-cost import competition and firm exit: evidence from the EU," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 131-161.
    3. Italo Colantone & Alessia Matano & Paolo Naticchioni, 2020. "New imported inputs, wages and worker mobility [Computing person and firm effects using linked longitudinal employer-employee data]," Industrial and Corporate Change, Oxford University Press, vol. 29(2), pages 423-457.
    4. Sangcheol Song, 2014. "Subsidiary Divestment: The Role of Multinational Flexibility," Management International Review, Springer, vol. 54(1), pages 47-70, February.
    5. Giorgio Barba Navaretti & Davide Castellani & Fabio Pieri, 2014. "Age and firm growth: evidence from three European countries," Small Business Economics, Springer, vol. 43(4), pages 823-837, December.
    6. James Foreman-Peck & Tom Nicholls, 2015. "Inter-regional mobility of entrepreneurial SMEs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 57-87, January.
    7. Campos-García, Irene & Muñoz-Bullón, Fernando & Sanchez-Bueno, Maria J. & Zúñiga-Vicente, José Angel, 2020. "Exploring the exporting-downsizing link: Does the type of export strategy and firm efficiency in foreign markets matter?," Journal of Business Research, Elsevier, vol. 108(C), pages 324-336.
    8. Cheung, Cherry & Coucke, Kristien & Neicu, Daniel, 2011. "A Decision Tree as a Quick Scan for Effective Market Functioning," Working Papers 2011/06, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    9. Tania Marques & Isabel Suarez Gonzalez & Pedro Cruz & Manuel Portugal Ferreira, 2011. "Downsizing and Profitability: An Empirical Study of Portuguese Firms in 1993¡V2005," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 10(1), pages 13-26, April.
    10. Cirillo, Alessandro & Muñoz-Bullón, Fernando & Sánchez-Bueno, María J. & Sciascia, Salvatore, 2022. "Employee downsizing and sales internationalization strategy in family firms," Journal of Family Business Strategy, Elsevier, vol. 13(2).
    11. Roger Bandick, 2016. "Offshoring, Plant Survival and Employment Growth," The World Economy, Wiley Blackwell, vol. 39(5), pages 597-620, May.
    12. Azimjon Kuvandikov & Andrew Pendleton & David Higgins, 2014. "Employment Change after Takeovers: The Role of Executive Ownership," British Journal of Industrial Relations, London School of Economics, vol. 52(2), pages 191-236, June.
    13. Zorn, Michelle L. & Norman, Patricia M. & Butler, Frank C. & Bhussar, Manjot S., 2017. "Cure or curse: Does downsizing increase the likelihood of bankruptcy?," Journal of Business Research, Elsevier, vol. 76(C), pages 24-33.

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