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The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain

Author

Listed:
  • Friebel, Guido

    () (Goethe University Frankfurt)

  • Heinz, Matthias

    () (University of Cologne)

  • Zubanov, Nick

    () (University of Konstanz)

Abstract

We estimate the effect of downsizing announcement on workplace performance using data from a German bakery chain of 193 shops. Faced with intensified competition, the firm decided to sell or close down 57 of its worst performing shops. We identify the effect of downsizing from a plausibly exogenous variation in the timing of the sale or closure announcement in the individual shops. We find that the announcements of the shop being sold to a new owner and being closed down reduce sales by six and 21 percent, respectively. The negative effect of downsizing increases with the share of workers with a permanent contract, even though permanent workers faced a much lower unemployment risk. We relate our findings to the literatures on downsizing and psychological contract.

Suggested Citation

  • 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 of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9739
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    References listed on IDEAS

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    1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2008. "Representative Trust And Reciprocity: Prevalence And Determinants," Economic Inquiry, Western Economic Association International, vol. 46(1), pages 84-90, January.
    2. Guido Friebel & Matthias Heinz & Miriam Krueger & Nikolay Zubanov, 2017. "Team Incentives and Performance: Evidence from a Retail Chain," American Economic Review, American Economic Association, vol. 107(8), pages 2168-2203, August.
    3. Jong, Jeroen de & Schalk, René & de Cuyper, Nele, 2009. "Balanced versus Unbalanced Psychological Contracts in Temporary and Permanent Employment: Associations with Employee Attitudes," Management and Organization Review, Cambridge University Press, vol. 5(03), pages 329-351, November.
    4. Friebel, Guido & Heinz, Matthias, 2014. "Media slant against foreign owners: Downsizing," Journal of Public Economics, Elsevier, vol. 120(C), pages 97-106.
    5. Jeroen De Jong & René Schalk & Nele De Cuyper, 2009. "Balanced versus Unbalanced Psychological Contracts in Temporary and Permanent Employment: Associations with Employee Attitudes," Management and Organization Review, The International Association for Chinese Management Research, vol. 5(3), pages 329-351, November.
    6. Guido Friebel & Gerard McCullough & Laura Padilla Angulo, 2014. "Patterns of Restructuring The US Class 1 Railroads from 1984 to 2004," Journal of Transport Economics and Policy, University of Bath, vol. 48(1), pages 115-135, January.
    7. 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.
    8. Julian Atanassov & E. Han Kim, 2009. "Labor and Corporate Governance: International Evidence from Restructuring Decisions," Journal of Finance, American Finance Association, vol. 64(1), pages 341-374, February.
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    Cited by:

    1. Manthei, Kathrin & Sliwka, Dirk & Vogelsang, Timo, 2017. "Performance Pay May Not Raise Performance – A Cautionary Tale Based On Evidence from Large Scale Field Experiments in a Retail Chain," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168287, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    downsizing; psychological contract; retail; teams; statistical analysis;

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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