Layoff and Employment Guarantee Announcements: How Do Shareholders Respond?

Abstract

Event study methodology was used to assess the effects of both layoff and employment guarantee announcements on shareholder returns. The Wall Street Journal was used to identify 368 firms that announced layoffs and 13 firms that announced employment guarantees in 1993 or 1994. The results were used to test the validity of four hypotheses: labor-cost, efficiency, industrial-relation-effect, and signalling-effect hypotheses. The results show that both layoff announcements and employment guarantee announcements induced a decrease in the shareholder returns of the firms that made the announcements. Each of the above four models received partial support.layoffs; downsizing; event study; employment guarantee