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Working Paper

Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements

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We investigate the impact of mass layoff announcements on the equity value of industry rivals. When a layoff announcement conveys good (bad) news for the announcer, rivals on average witness a 0.44 percent increase (0.60 percent decrease) in cumulative abnormal stock returns. This effect is concentrated on rivals with high growth opportunities. Consistent with this finding, we also show that our results are strongest in technology industries, where growth opportunities matter the most. Our results suggest that investors perceive layoff announcements as news about industry prospects rather than just the announcer.
Topics
Labor economics
Financial markets
08.31.2018ISSN 2573-7953 WP 16-10ROriginal Paper WP 16-10DOI 10.26509/frbc-wp-201610r
Keywords mass layoffs, rivals, firm characteristics
JEL Classification Codes J63, G14

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Bordeman, Adam, Bharadwaj Kannan, and Roberto B. Pinheiro. 2018. “Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements.” Federal Reserve Bank of Cleveland, Working Paper No. 16-10R. https://doi.org/10.26509/frbc-wp-201610r