Stock investors' reaction to layoff announcements: A meta‐analysis

Abstract

Does a firm's layoff announcement elicit a negative or a positive reaction from its stock investors? The extant empirical evidence on this question is mixed. The authors' meta‐analysis of 34,594 layoff announcements taken from 126 samples featured in 78 studies reports that the average investor reaction is significantly negative (effect size of −0.549). Next, the authors use signaling theory—specifically, characteristics of the signal, the signaler, and the signaling environment—to examine variation in investor reaction. They find that investors do not react if a layoff announcement signals proactive management (e.g., cost cutting) but penalize the firm if the layoff indicates reactive management (e.g., decline in demand). The penalty is also positively associated with layoff size but unrelated to firm size. Further, investors have become less punitive over time, or if its stock is traded on an exchange in civil law (vs. common law) country. The empirical generalizations guide managers on the consequences of their layoff announcements.

Analisis Reaksi Pasar Saham Menggunakan Abnormal Return Dan Trading Volume Activity Terhadap Pengumuman Layoff Perusahaan

“…Menurut teori pasar efisien yang dikemukakan oleh Eugene Fama, harga saham merefleksikan informasi-informasi yang diterima oleh pasar (Brealey et al, 2023). Eshghi & Astvansh (2023) juga menjelaskan reaksi investor saham terhadap pengumuman layoff dengan menggunakan Signalling Theory (Teori Sinyal), dimana pengumuman layoff dapat menjadi sinyal bagi investor, baik positif atau negatif. Teori sinyal mengungkapkan bahwa bahwa manajer perusahaan dapat memberikan sinyal atau informasi kepada investor untuk memberikan gambaran terkait prospek perusahaan di masa depan (Brigham & Houston, 2022).…”