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Competitors' Stock Price Reaction to Mass Layoff Announcements

Author

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  • Adam Bordeman
  • Bharadwaj Kannan
  • Roberto Pinheiro

Abstract

Using data on layoff announcements by S&P 500 firms, we show that layoff announcements mostly contain industrywide news. Competitors? stock price reactions are positively correlated with the announcer?s returns. This contagion effect is stronger for competitors whose values depend on growth opportunities. When layoff announcements induce positive stock returns to announcers, competitors with positive R&D see a 1.15% increase in their returns. Conversely, when announcements induce negative reactions to announcers, competitors with high sales growth see a reduction of 1.09% in returns. Our findings suggest that investors perceive layoffs as a change in growth options rather than a change in the competitive environment.

Suggested Citation

  • Adam Bordeman & Bharadwaj Kannan & Roberto Pinheiro, 2016. "Competitors' Stock Price Reaction to Mass Layoff Announcements," Working Papers (Old Series) 1610, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1610
    DOI: 10.26509/frbc-wp-201610r
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    Cited by:

    1. Alison E. Weingarden, 2017. "The Timing of Mass Layoff Episodes : Evidence from U.S. Microdata," Finance and Economics Discussion Series 2017-088, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Mass Layoffs; Competitors; Firm characteristics;
    All these keywords.

    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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