Announced layoffs: Their effect on corporate financial performance

Abstract

Abstract Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal and effective response. In this study, evidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five‐year period—two years prior to the announced layoff, the year of the layoff announcement, and two years following it. Contrary to expectations, the results indicate that financial performance worsened , rather than improved, following announced layoffs. Strategic and human resource implications for the management of corporate downsizing are provided.