Is downsizing a good strategy during the downturn? Evidence from Taiwanese manufacturing firms

Eric Lin, Chia-Ling Lin, Hui-Lin Lin and Yi-Chi Hsiao

Japan and the World Economy, 2023, vol. 65, issue C

Abstract: In response to a crisis, while retrenchments are considered to be an important part of a firm’s long-term recovery, research has indicated that downsizing strategies, reducing employment and shrinking the R&D budget, may lead to an erosion of a firm’s valuable core competence. Drawing from the literature of organizational turnaround strategies, this study advances the downsizing research by explaining how downsizing strategies affect a firm’s long-term performance. Using a uniquely compiled dataset of 2559 Taiwanese manufacturing firms, our research shows that increasing labor employment during a financial crisis can significantly improve a firm’s long-term total factor productivity and sales. In other words, employment downsizing may not be the best solution when encountering an economic downturn.

Keywords: R&D; Employment; Downsizing strategy; Financial crisis (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:65:y:2023:i:c:s0922142522000561

DOI: 10.1016/j.japwor.2022.101171

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