Are employee decisions informative in the stock market? Evidence from employee downsizing in Japan

Keishi Fujiyama, Yusuke Fukaya, Philip Keejae Hong and Toshio Moriwaki

Finance Research Letters, 2025, vol. 73, issue C

Abstract: This study investigates whether employee decisions on downsizing program applications convey private information in Japan. We find that the stock market reacts negatively to downsizing announcements with both substantial excess and shortfall outcomes. Additional analyses reveal that the negative market reactions for shortfall announcements are driven by those with a positive market reaction to the initial announcement and that firms with a shortfall in downsizing initially propose larger downsizing targets. These findings suggest that employee decisions during downsizing processes convey private information to stock investors and that managers may strategically set higher downsizing expectations to meet a desired downsizing target.

Keywords: Employee downsizing; Market reaction; Cumulative abnormal return; Private information (search for similar items in EconPapers)
JEL-codes: G14 J63 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016404

DOI: 10.1016/j.frl.2024.106611

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