Competitors' Stock Price Reaction to Mass Layoff Announcements

Adam Bordeman, Bharadwaj Kannan and Roberto Pinheiro

No 1610, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Using data on layoff announcements by S&P 500 firms, we show that layoff announcements mostly contain industrywide news. Competitors? stock price reactions are positively correlated with the announcer?s returns. This contagion effect is stronger for competitors whose values depend on growth opportunities. When layoff announcements induce positive stock returns to announcers, competitors with positive R&D see a 1.15% increase in their returns. Conversely, when announcements induce negative reactions to announcers, competitors with high sales growth see a reduction of 1.09% in returns. Our findings suggest that investors perceive layoffs as a change in growth options rather than a change in the competitive environment.

Keywords: Mass Layoffs; Competitors; Firm characteristics (search for similar items in EconPapers)
JEL-codes: G14 J63 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2016-04-18
New Economics Papers: this item is included in nep-pr~ and nep-lab
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Citations: View citations in EconPapers (1)

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https://www.clevelandfed.org/newsroom-and-events/p ... f-announcements.aspx Full text (text/html)
https://doi.org/10.26509/frbc-wp-201610r Full text (text/html)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1610

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