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The Effects of Downsizing on Operating Performance


  • Espahbodi, Reza
  • John, Teresa A
  • Vasudevan, Gopala


We examine the performance of 118 firms that downsized between 1989-93. We find that downsizing firms experience declines in operating performance prior to the downsizing announcement. Operating performance improves significantly following the downsizing. These firms are able to reduce the cost of sales, labor cost, capital expenditures and R&D expenditures. We also find that firms that perform poorly in their industries prior to the downsizing and have increases in assets following the downsizing have larger improvements in performance. There is some evidence that the improvements are greater for firms that increase their focus. Copyright 2000 by Kluwer Academic Publishers

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  • Espahbodi, Reza & John, Teresa A & Vasudevan, Gopala, 2000. "The Effects of Downsizing on Operating Performance," Review of Quantitative Finance and Accounting, Springer, vol. 15(2), pages 107-126, September.
  • Handle: RePEc:kap:rqfnac:v:15:y:2000:i:2:p:107-26

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    References listed on IDEAS

    1. Kenneth A. Kavajecz, 2004. "Technical Analysis and Liquidity Provision," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1043-1071.
    2. Philippe Jorion & William N. Goetzmann, 1999. "Global Stock Markets in the Twentieth Century," Journal of Finance, American Finance Association, vol. 54(3), pages 953-980, June.
    3. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-1764, December.
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    Cited by:

    1. Panos Desyllas, 2009. "Improving performance through vertical disintegration: evidence from UK manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 307-324.
    2. Friebel, Guido & Heinz, Matthias & Zubanov, Nick, 2016. "The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain," IZA Discussion Papers 9739, Institute for the Study of Labor (IZA).
    3. Dong, Xiao-yuan & Xu, Lixin Colin, 2009. "Labor restructuring in China: Toward a functioning labor market," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 287-305, June.
    4. Rama, Martin & Newman, Constance, 2002. "Downsizing and productivity gains in the public and private sectors of Colombia," Policy Research Working Paper Series 2770, The World Bank.
    5. José Allouche & Patrice Laroche & Florent Noël, 2008. "Restructurations et performances de l’entreprise:une méta-analyse," Revue Finance Contrôle Stratégie,, vol. 11(2), pages 105-146, June.
    6. Matthias Brauer & Tomi Laamanen, 2014. "Workforce Downsizing and Firm Performance: An Organizational Routine Perspective," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1311-1333, December.
    7. Franco GANDOLFI & Magnus HANSSON, 2015. "A Global Perspective on the Non-Financial Consequences of Downsizing," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 16(2), pages 185-204, May.
    8. Mary Hill & Peter Johnson & Kelvin Liu & Thomas Lopez, 2015. "Operational restructurings: where’s the beef?," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 721-755, November.

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