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Disclosure strategies and investor reactions to downsizing announcements: A legitimacy perspective

Author

Listed:
  • Emmanuelle Negre

    (UM - Université de Montpellier)

  • Marie-Anne Verdier

    (UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse)

  • Charles H. Cho

    (York University [Toronto])

  • Dennis Patten

    (Illinois State University)

Abstract

In this paper, we focus on a relatively underexplored aspect of sustainability—workforce reductions. We investigate the determinants and consequences of the decisions made by French firms to use press releases in order to announce downsizing operations. We also examine whether the content of press releases has an impact on investor reactions to downsizing announcements. Particularly in the French context, downsizing operations reflect negatively on corporate social responsibility with respect to employees, and we anticipate that French managers will use disclosure strategies to counter a potential legitimacy threat. Our sample consists of 227 downsizing operations announced between 2007 and 2012 by 119 French listed firms. We find that the disclosure of press releases is driven by both contextual and legitimacy factors. We also find that press releases are associated with more negative reactions to downsizing announcements than when there is no press release, particularly in the case of proactive operations (i.e., implemented by firms with improving performance). A content analysis of press releases indicates that firms, on average, engage in a reactive impression management strategy in their disclosure that consists of attributing downsizing operations to external factors. Moreover, investors penalize the use of proactive arguments, particularly when they are used to justify proactive operations. Overall, our results show that, in the French case, disclosure strategies and their consequences on the financial markets relate to a legitimacy perspective

Suggested Citation

  • Emmanuelle Negre & Marie-Anne Verdier & Charles H. Cho & Dennis Patten, 2017. "Disclosure strategies and investor reactions to downsizing announcements: A legitimacy perspective," Post-Print halshs-01698634, HAL.
    • Handle: RePEc:hal:journl:halshs-01698634
    DOI: 10.1016/j.jaccpubpol.2017.03.003
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    Citations

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    Cited by:

    1. García-Sánchez, Isabel-María & Suárez-Fernández, Oscar & Martínez-Ferrero, Jennifer, 2019. "Female directors and impression management in sustainability reporting," International Business Review, Elsevier, vol. 28(2), pages 359-374.
    2. Teresa Herrador-Alcaide & Montserrat Hernández-Solís, 2019. "Empirical Study Regarding Non-Financial Disclosure for Social Conscious Consumption in the Spanish E-Credit Market," Sustainability, MDPI, vol. 11(3), pages 1-26, February.
    3. 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).
    4. Samira Demaria & Sandra Rigot & Sylvain Borie, 2019. "A new measure of environmental reporting practice based on the recommendations of the Task Force on Climate-related Financial Disclosures," Post-Print halshs-02407136, HAL.
    5. Yubin Qian & Ya Sun, 2022. "Bibliometric analysis of literature on narrative discourse in corporate annual reports (1990–2019)," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(2), pages 429-446, April.
    6. Tseng, Chih-Yang & Demirkan, Sebahattin, 2021. "Joint effect of CEO overconfidence and corporate social responsibility discretion on cost of equity capital," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(1).
    7. Suraiyah Akbar & Craig Deegan, 2021. "Analysis of corporate social disclosures of the apparel industry following crisis: an institutional approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3565-3600, June.
    8. Jeanne Amar & Samira Demaria & Sandra Rigot, 2019. "What motivates CAC 40 companies to disclose information on climate-related financial risks?," Post-Print halshs-02407125, HAL.
    9. Jennifer Martínez‐Ferrero & Oscar Suárez‐Fernández & Isabel‐María García‐Sánchez, 2019. "Obfuscation versus enhancement as corporate social responsibility disclosure strategies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(2), pages 468-480, March.
    10. Martins, Adelaide & Gomes, Delfina & Oliveira, Lídia & Caria, Ana & Parker, Lee, 2020. "Resistance strategies through the CEO communications in the media," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 71(C).
    11. Xiaojian Xiang & Chuanjiang Liu & Mian Yang & Xiaomeng Zhao, 2020. "Confession or justification: The effects of environmental disclosure on corporate green innovation in China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2735-2750, November.
    12. Ionela Andreicovici & Nava Cohen & Silvia Ferramosca & Alessandro Ghio, 2021. "Two Wrongs Make a ‘Right’? Exploring the Ethical Calculus of Earnings Management Before Large Labor Dismissals," Journal of Business Ethics, Springer, vol. 172(2), pages 379-405, August.

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