Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97
AbstractWe study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of nearly 3878 such announcements in 1176 large firms during the 1970-97 period collected from the Wall Street Journal Index. We note that, although there has been a dramatic secular increase in news stories related to job loss, the total number of actual announcements fro the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, meridians, fraction negative) of the distribution of stock market reactions as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions has shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We find that, although this explanation shows some promise, most of the decline in the negative stock price reaction remains unexplained.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7295.
Date of creation: Aug 1999
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Other versions of this item:
- Henry S. Farber & Kevin Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," Working Papers 796, Princeton University, Department of Economics, Industrial Relations Section..
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-08-27 (All new papers)
- NEP-FIN-1999-08-27 (Finance)
- NEP-LAB-1999-08-27 (Labour Economics)
- NEP-LTV-1999-09-04 (Unemployment, Inequality & Poverty)
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