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Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements

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Listed:
  • Adam Bordeman
  • Bharadwaj Kannan
  • Roberto Pinheiro

Abstract

We investigate the impact of mass layoff announcements on the equity value of industry rivals. When a layoff announcement conveys good (bad) news for the announcer, rivals on average witness a 0.44 percent increase (0.60 percent decrease) in cumulative abnormal stock returns. This effect is concentrated on rivals with high growth opportunities. Consistent with this finding, we also show that our results are strongest in technology industries, where growth opportunities matter the most. Our results suggest that investors perceive layoff announcements as news about industry prospects rather than just the announcer.

Suggested Citation

  • Adam Bordeman & Bharadwaj Kannan & Roberto Pinheiro, 2016. "Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements," Working Papers 16-10R, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:161001
    DOI: 10.26509/frbc-wp-201610r
    Note: This is a revision of Working Paper 16-10 "Competitors' Stock Price Reaction to Mass Layoff Announcements"
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    More about this item

    Keywords

    Firm characteristics; Mass Layoffs; Rivals;
    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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