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Layoffs, Top Executive Pay, and Firm Performance

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  • Hallock, Kevin F

Abstract

This paper examines the connection between layoffs, executive pay, and stock prices. Firms that announce layoffs in the previous year pay their CEOs more, and give their CEOs larger percentage raises than firms which do not have at least one layoff announcement in the previous year. However, the likelihood of announcing a layoff varies dramatically along other dimensions, for example firm size, which are also correlated with CEO pay. Once firm-specific fixed effects are controlled for, the CEO pay premium for laying off workers disappears. In addition, there is a small negative share price reaction to layoff announcements. Copyright 1998 by American Economic Association.

Suggested Citation

  • Hallock, Kevin F, 1998. "Layoffs, Top Executive Pay, and Firm Performance," American Economic Review, American Economic Association, vol. 88(4), pages 711-723, September.
  • Handle: RePEc:aea:aecrev:v:88:y:1998:i:4:p:711-23
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    Cited by:

    1. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
    2. Rachel M. Hayes & Paul Oyer & Scott Schaefer, 2006. "Coworker Complementarity and the Stability of Top-Management Teams," Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 184-212, April.
    3. Degeorge, Francois & Jenter, Dirk & Moel, Alberto & Tufano, Peter, 2004. "Selling company shares to reluctant employees: France Telecom's experience," Journal of Financial Economics, Elsevier, vol. 71(1), pages 169-202, January.
    4. Marco Celentani & Rosa Loveira & Pablo Ruiz-Verdú, 2010. "Executive Pay with Observable Decisions," Working Papers 2010-29, FEDEA.
    5. Krishnan, Hema A. & Park, Daewoo, 2002. "The impact of work force reduction on subsequent performance in major mergers and acquisitions: an exploratory study," Journal of Business Research, Elsevier, vol. 55(4), pages 285-292, April.
    6. Katja Rost & Soren Salomo & Margit Osterloh, 2008. "CEO Appointments and the Loss of Firm-specific Knowledge - Putting Integrity Back into Hiring Decisions," CREMA Working Paper Series 2008-27, Center for Research in Economics, Management and the Arts (CREMA).
    7. Michael Reich, 2013. "The rising strength of management, high unemployment, and slow growth; revisiting Okun's Law," Chapters,in: Capitalism on Trial, chapter 11 Edward Elgar Publishing.
    8. Henry S. Farber & Kevin F. Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," NBER Working Papers 7295, National Bureau of Economic Research, Inc.
    9. Jérôme Hubler & Pierre-Xavier Meschi & Géraldine Schmidt, 2004. "Annonces de suppressions d’emplois et valeur boursière de l’entreprise," Revue Finance Contrôle Stratégie, revues.org, vol. 7(4), pages 107-142, December.
    10. Unite, Angelo A. & Sullivan, Michael J. & Brookman, Jeffrey & Majadillas, Mary Anne & Taningco, Angelo, 2008. "Executive pay and firm performance in the Philippines," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 606-623, November.
    11. Henry S. Farber & Kevin F. Hallock, 1999. "Changing Stock Market Response to Announcement of Job Loss: Evidence from 1970-1997," Working Papers 793, Princeton University, Department of Economics, Industrial Relations Section..
    12. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.
    13. Werner Neus & Andreas Walter, 2009. "Kursgewinne durch Entlassungspläne? Erste Ergebnisse aus Deutschland," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(1), pages 1-20, February.
    14. Audretsch, David B & Lehmann, Erik, 2002. "Does the New Economy Need New Governance? Ownership, Knowledge and Performance," CEPR Discussion Papers 3626, C.E.P.R. Discussion Papers.
    15. Aaron B. Flaaen & Matthew D. Shapiro & Isaac Sorkin, 2017. "Reconsidering the Consequences of Worker Displacements: Firm versus Worker Perspective," NBER Working Papers 24077, National Bureau of Economic Research, Inc.
    16. Kevin Hallock, 1999. "Changing Stock Market Response to Announcement of Job Loss: Evidence from 1970-1997," Working Papers 793, Princeton University, Department of Economics, Industrial Relations Section..
    17. Andjelkovic, Aleksandar & Boyle, Glenn & McNoe, Warren, 2002. "Public disclosure of executive compensation: Do shareholders need to know?," Pacific-Basin Finance Journal, Elsevier, vol. 10(1), pages 97-117, January.
    18. repec:mth:ber888:v:8:y:2018:i:1:p:h:ber888:v:8:y:2018:i:1:p:212-243 is not listed on IDEAS
    19. Farber, Henry S. & Hallock, Kevin F., 2009. "The changing relationship between job loss announcements and stock prices: 1970-1999," Labour Economics, Elsevier, vol. 16(1), pages 1-11, January.
    20. Kevin F. Hallock, 2009. "Job Loss and the Fraying of the Implicit Employment Contract," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 69-93, Fall.
    21. Chen, Peter & Mehrotra, Vikas & Sivakumar, Ranjini & Yu, Wayne W., 2001. "Layoffs, shareholders' wealth, and corporate performance," Journal of Empirical Finance, Elsevier, vol. 8(2), pages 171-199, May.
    22. repec:spr:rvmgts:v:12:y:2018:i:1:d:10.1007_s11846-016-0219-7 is not listed on IDEAS
    23. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
    24. Steven G. Allen & Robert L. Clark & Sylvester J. Schieber, 1999. "Has Job Security Vanished in Large Corporations?," NBER Working Papers 6966, National Bureau of Economic Research, Inc.

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