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Are employee decisions informative in the stock market? Evidence from employee downsizing in Japan

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  • Fujiyama, Keishi
  • Fukaya, Yusuke
  • Hong, Philip Keejae
  • Moriwaki, Toshio

Abstract

This study investigates whether employee decisions on downsizing program applications convey private information in Japan. We find that the stock market reacts negatively to downsizing announcements with both substantial excess and shortfall outcomes. Additional analyses reveal that the negative market reactions for shortfall announcements are driven by those with a positive market reaction to the initial announcement and that firms with a shortfall in downsizing initially propose larger downsizing targets. These findings suggest that employee decisions during downsizing processes convey private information to stock investors and that managers may strategically set higher downsizing expectations to meet a desired downsizing target.

Suggested Citation

  • Fujiyama, Keishi & Fukaya, Yusuke & Hong, Philip Keejae & Moriwaki, Toshio, 2025. "Are employee decisions informative in the stock market? Evidence from employee downsizing in Japan," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016404
    DOI: 10.1016/j.frl.2024.106611
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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

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