Layoff announcements and intra-day market reactions

Santiago Velásquez, Juho Kanniainen (), Saku Mäkinen and Jaakko Valli
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Santiago Velásquez: Universidad de Los Andes
Juho Kanniainen: Tampere University of Technology
Saku Mäkinen: Tampere University of Technology
Jaakko Valli: Tampere University of Technology

Review of Managerial Science, 2018, vol. 12, issue 1, No 7, 203-228

Abstract: Abstract This paper examines investor intra-day reactions related to two types of layoff announcements, the first one at the start of layoff negotiations and the other at the final layoff decisions. We provide statistically significant evidence that, on average, investors have strongly negative reaction to layoff negotiations within the first 10 min. However, we also provide strong evidence that the first negative reaction is reversed by an upward post-drift in aggregated cumulative abnormal returns in the following hours, perhaps because markets need hours to process such unpredictable and complex information and its consequences—even if their first reaction was strong and immediate. Moreover, on the aggregated level, final layoff announcements do not generally convey information that is exceptionally useful to investors, except when reactions to associated initial announcements have not been statistically significant. Importantly, our analysis demonstrates the importance of the use of intra-day data: The reactions, which can be strong but short-lived, are identifiable with intra-day data only. Finally, we find that intra-day reactions cannot be explained by various company background characteristics, such as the number of employees, sales, profitability, and assets/liabilities ratio.

Keywords: Layoff; Announcements; Abnormal return; Stock markets (search for similar items in EconPapers)
JEL-codes: G19 M54 O15 O16 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11846-016-0219-7

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