The effects of regulatory investigation, supplier defect, and product age on stock investors’ reaction to an automobile recall

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.

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The effects of regulatory investigation, supplier defect, and product age on stock investors’ reaction to an automobile recall

Cited by 6 publications

References 94 publications

Product recall: a synthesis of multidisciplinary findings, and research directions

Product recall: a synthesis of multidisciplinary findings, and research directions

Additive manufacturing in international business: Bridging academic and practitioners' perspectives

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

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