Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97

Henry Farber and Kevin Hallock
Additional contact information
Henry Farber: Princeton University

No 796, Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of nearly 3878 such announcements in 1176 large firms during the 1970-97 period collected from the Wall Street Journal Index. We note that, although there has been a dramatic secular increase in news stories related to job loss, the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction negative) of the distribution of stock market reactions as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions has shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We find that, although this explanation shows some promise, most of the decline in the negative average stock price reaction remains unexplained.

Keywords: layoffs; job loss; event studies (search for similar items in EconPapers)
JEL-codes: N70 N71 (search for similar items in EconPapers)
Date: 1999-06
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://dataspace.princeton.edu/bitstream/88435/dsp01xk81jk37r/1/417.pdf
Our link check indicates that this URL is bad, the error code is: 500 Internal Server Error

Related works:
Working Paper: Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97 (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pri:indrel:417

Access Statistics for this paper

More papers in Working Papers from Princeton University, Department of Economics, Industrial Relations Section. Contact information at EDIRC.
Bibliographic data for series maintained by Bobray Bordelon ().