Announced layoffs: Their effect on corporate financial performance

Abstract

L Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal and effective response. In this study, euidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five-year period-two years prior to the announced layof, the year of the layof announcement, and two years following it. Contrary to expectations, the results indicate that financial performance worsened, rather than improved, following announced layoffs. Strategic and human resource implications for the management of corporate downsizing are provided.

The Digital Technology and the Threat of Downsizing into Indonesia‘s Banking Industry Performance

“…The digital economic data will be analyzed using the published of Indonesia government report including the strategic development of telecommunication infrastructure and also stated by the Economist Intelligence Unit (EIU) [22], which include: the ICT infrastructure (X 1 ), the business environment (X 2 ), the social and cultural environment (X 3 ) and consumer and business adoption (X 4 ). The downsizing strategy (Y 1 ) was characterized by the reducing the number of current employees [14] and for the banking performance will be measured by the rate of customer satisfaction (Y 2 ), the bank image (Y 3 ), and the bank's financial performances (Y 4 ) [17].…”

“…Downsizing is the systematic reduction of a workforce through an internationally instituted set of activities by which organizations aim to improve efficiency and performance [13], [5]. De Meuse [14] defined downsizing as -a large permanent, reactive layoffs, a streamlining of functions, a redesign of systems, a redefinition of policies aimed at cutting costs and a proactive strategy.‖ Bank and Tustin [15] posited that downsizing is one tactic within a corporate strategy for shifting the organizational structure from what it is now to what it has to be in order to sustain competitive edge and satisfy customer's needs. The reason advanced for downsizing is also to improve service delivery and promote good governance.…”

Do Downsizing and Global Financial Crisis Affect SMIs Labour Productivity in Malaysia?

“…[24] found that companies laying off 10% or more of the work force significantly underperformed firms laying off less on profit margin, ROA, ROE, and market-to-book ratio. [8] found, the announced layoffs do not enhance financial performance. Based on [16] work, the improvement of financial performance (ROA) by retrenching was found to be greater among companies that had not experienced any loss than among those that had experienced loss.…”

“…During the current global financial crisis, firms and corporations are searching for strategies to enable them to survive and sustain their profitability. These firms retrenched or retrench so that they can (a) reduce operating costs, (b) eliminates unnecessary level of management, (c) streamlines operations, (d) enables an organisation to prune deadwood, (e) enhances overall effectiveness, and (f) ultimately, makes a firm more competitive in today's market place [3]- [8] found that the evidence suggests retrenching is more likely to be effective when it is part of an organization's overall long-term strategic planning process.…”

“…On the effect of retrenching on financial performance, [8] compare companies that announced layoffs with those that did not layoff and found that they do not differ financially during a period of one to two years prior to the announcement. Their t-tests revealed that the layoff firms had significantly lower profit margin, return on assets, return on equity and the market-to-book ratios during the announcement year and this increase in magnitude in the two years that follow.…”