Downsizing implementation and financial performance

Abstract

In the present study we explore the relationship between downsizing decisions and corporate financial performance after top management has decided to downsize. Our focus is on the financial consequences arising from the amount of downsizing and the use of disengagement incentives. For this purpose, we use a sample of downsizing announcements in the Spanish press from 1995 up to 2001. Although the results show that the amount of downsizing is not significantly related to post-downsizing profitability, the evidence provided supports the finding that the use of disengagement incentives (which motivate workers to leave the organization) is negatively related to firm performance. Our analysis helps to understand the role that strategic downsizing decisions play in explaining observed variance in the performance of downsized firms. Thus, it advances scholarly organizational research by reinforcing the concept that corporate performance is not only contingent on strategies, but also influenced by the means through which these strategies are implemented.

The influences of the downsizing strategy on business structures

“…Company managers face pressure from shareholders to improve financial results; many managers believe that layoff strategies reveal clear and predictable information, however layoffs in themselves cannot be said to improve financial results in the long term (Muñoz, F. & Sanchez, M., 2010). If the downsizing strategy is implemented in an inadequate manner, the results will not be achieved, and something more is required than simple layoffs as a means of renovating an organization and repositioning it within the market.…”

Has the reduction of employment been efficient in the restructuring of banks in Europe? An insight into the overbranched sector in Spain

“…The econometric model to conduct the empirical analysis was a model of linear regression with panel data (Baumol et al, 2003;Bruton et al, 1996;Budros, 1997;Cascio, Young, & Morris, 1997;Coucke et al, 2007;De Meuse et al, 2004;Espahbodi et al, 2000;Guthrie & Datta, 2008;Huselid, 1995;Love & Kraatz, 2009;Love & Nohria, 2005;Magán & Céspedes, 2007b;McElroy, Morrow, & Rude, 2001;Mellahi & Wilkinson, 2010;Muñoz & Sanchez, 2010Maldonado et al, 2009;O'Shaughnessy & Flanagan, 1998;Perry & Shivdasani, 2005;Sheaffer et al 2009;Suarez, 1999;Suarez & Vicente, 2000;Yoo & Mody, 2000;Yu & Park, 2006), as this type of model was the most appropriate for measuring the causal relationship between a sample of economic agents for a certain time period.…”

Inducing Employees to Leave: A Comparison of Four Severance Options

“…A common method to reduce the workforce without forced layoffs is to institute a variety of severance options, such as earlyretirement programs and buyouts (Muñoz-Bullón & Sánchez-Bueno, 2010;Zatzick et al, 2009). An appropriate mix of these options, one that takes into account the composition of the workforce, allows an organization to downsize without the necessity of forced layoffs.…”