Downsizing and firm performance: evidence from German firm data

Abstract

This article uses a unique data set to study the short-term effects of downsizing on operational and financial performance of large German firms. In general, productivity and profitability after downsizing are—at the best—comparable to their pre-downsizing levels. During the downsizing event, the performance even drops. Moreover, we make a distinction between firms downsizing because of a business downturn and firms downsizing to increase efficiency. Especially downsizing for the latter firms appears to be unsuccessful.