Corporate Reorganizations: Changes in the Intensity of Labor and Capital Expenditures

Abstract

Using a new measure that indirectly captures a firm's restructuring efforts on the basis of changes in its labor and capital expenditure patterns, this study examines the link between restructuring and financial performance for an international sample of firms during the years 1989-1997. Results show that firms that curbed the growth in labor expense intensity (labor expense relative to sales), regardless of the accompanying changes in sales or in capital expenditure intensity, had significantly higher annual returns (despite having "lower" profitability) than firms that expanded their labor intensity. Financial market's response to a reduction in labor expense intensity appears to be more favorable if this reduction is accompanied by a reduction in capital expenditure growth when firms face declining sales, and an increase in capital expenditure growth when firm sales are growing. Copyright Blackwell Publishers Ltd 1999.

Reactions of the International Stock Exchange to Company Employment Announcements: Redundancies and New Jobs

“…Myopia is not present. Our findings are the opposite of Ballester, Livnat and Sinha's (1999). Their work suggests that the markets are negative about new labour investments, believing that directors are more interested in empire-building than profits.…”

Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?

“…That growth firms are less prone to downsize their workforce is largely consistent with the findings of Ballester, Livnat, and Sinha (1999). Growth firms, on the other hand, are increasing their combined workforce in all of the years investigated.…”

Employee Downsizing Strategies: Market Reaction and Post Announcement Financial Performance

“…Revenue refocusing downsizing strategies are more successful than cost cutting and plant closing downsizing strategies. These findings help to clarify the apparent contradiction between ongoing corporate downsizing and the generally inconclusive empirical evidence to date with respect to both market reactions to layoff announcements and subsequent financial performance (Ballester et al, 1999;Cascio et al, 1997;Lee, 1997;Mentzer, 1996;and Worrell et al, 1991). Our results suggest that layoff announcements that disclose strategic plans for refocusing lines of business result in significantly positive abnormal market returns.…”

“…downsizing announcements. More recently, Ballester et al (1999) found evidence that firms that downsized employees while increasing capital expenditures did improve their financial performance. Given continued corporate downsizing and anecdotal reports of productivity gains associated with layoffs in the financial press, both the negative market reactions to downsizing announcements and the mixed financial performance results are puzzling.…”