The Information Content of Plant Closing Announcements: Evidence from Financial Profiles and the Stock Price Reaction

Abstract

This study demonstrates that a plant closing announcement provides information not just for the plant being closed but also for other operations and the firm as a whole. An examination of changes in firm financial condition following the announcement indicates problems that are firm-wide, not just plant-specific. Firms announcing plant closings experience a decline in profitability during the announcement year and the following year as well as declines in employment, asset acquisition, and dividend growth for the years following the announcement. The stock price reaction to closing announcements is found to be negative and statistically significant with a greater negative reaction for plants that are more closely related to firm operations, and for plants that comprise a larger portion of the firm's operations.