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

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Author Info

  • 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.

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File URL: http://hdl.handle.net/10.1093/icc/dtm002
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Bibliographic Info

Article provided by Oxford University Press in its journal Industrial and Corporate Change.

Volume (Year): 16 (2007)
Issue (Month): 2 (April)
Pages: 161-182

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Handle: RePEc:oup:indcch:v:16:y:2007:i:2:p:161-182

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Cited by:
  1. 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.
  2. 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, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 10(1), pages 13-26, April.
  3. Navaretti , Giorgio Barba & Castellani , Davide & Pieri , Fabio, 2013. "Age and firm growth. Evidence from three European countries," CIRCLE Electronic Working Papers 2013/41, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.

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