IDEAS home Printed from https://ideas.repec.org/p/pri/indrel/417.html

Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97

Author

Listed:
  • Henry S. Farber

    (Princeton University)

  • Kevin F. Hallock

    (University of Illinois)

Abstract

We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of nearly 3878 such announcements in 1176 large firms during the 1970-97 period collected from the Wall Street Journal Index. We note that, although there has been a dramatic secular increase in news stories related to job loss, the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction negative) of the distribution of stock market reactions as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions has shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We find that, although this explanation shows some promise, most of the decline in the negative average stock price reaction remains unexplained.

Suggested Citation

  • Henry S. Farber & Kevin F. Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," Working Papers 796, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:417
    as

    Download full text from publisher

    File URL: https://dataspace.princeton.edu/bitstream/88435/dsp01xk81jk37r/1/417.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boyer, Tristan, 2002. "Gouvernement d'entreprise et décisions d'emploi [Corporate Governance and employment decisions]," MPRA Paper 10287, University Library of Munich, Germany.
    2. repec:bla:germec:v:7:y:2006:i::p:189-210 is not listed on IDEAS
    3. Michelle M. Arthur & Alison Cook, 2004. "Taking Stock of Work-Family Initiatives: How Announcements of “Family-Friendly†Human Resource Decisions Affect Shareholder Value," ILR Review, Cornell University, ILR School, vol. 57(4), pages 599-613, July.
    4. Bénédicte Reynaud & Arnaud Degorre, 2007. "Workforce reduction and firm performance: a comparison between French publicly-listed and non-listed companies, 1994-2000," PSE Working Papers halshs-00588011, HAL.
    5. Howard Gospel & Andrew Pendleton, 2003. "Finance, Corporate Governance and the Management of Labour: A Conceptual and Comparative Analysis," British Journal of Industrial Relations, London School of Economics, vol. 41(3), pages 557-582, September.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative
    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:indrel:417. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bobray Bordelon (email available below). General contact details of provider: https://edirc.repec.org/data/irprius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.