Strategic Corporate Layoffs

Firms in the S&P 500 often announce layoffs within days of one another, despite the fact that the average S&P 500 constituent announces layoffs once every 5 years. By contrast, similarsized privately-held firms do not behave in this way. This paper provides empirical evidence that such clust...

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Bibliographic Details
Main Author: Agarwal, Ruchir
Other Authors: Kolev, Julian
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2016
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Strategic Corporate Layoffs  |c Ruchir Agarwal, Julian Kolev 
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651 4 |a United States 
653 |a Labor market 
653 |a Labor economics 
653 |a Macroeconomics 
653 |a Finance: General 
653 |a Value of Firms 
653 |a Labor Economics: General 
653 |a Labor 
653 |a Income economics 
653 |a Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) 
653 |a Goodwill 
653 |a Business Fluctuations 
653 |a Financial Risk and Risk Management 
653 |a Financial markets 
653 |a Information and Market Efficiency 
653 |a Finance 
653 |a General Financial Markets: General (includes Measurement and Data) 
653 |a Labor Turnover 
653 |a Labour 
653 |a Labor Force and Employment, Size, and Structure 
653 |a Financing Policy 
653 |a Wages 
653 |a Labor force 
653 |a Layoffs 
653 |a Economic growth 
653 |a Event Studies 
653 |a Stock exchanges 
653 |a Wages, Compensation, and Labor Costs: General 
653 |a Business cycles 
653 |a Vacancies 
653 |a Capital and Ownership Structure 
653 |a Stock markets 
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520 |a Firms in the S&P 500 often announce layoffs within days of one another, despite the fact that the average S&P 500 constituent announces layoffs once every 5 years. By contrast, similarsized privately-held firms do not behave in this way. This paper provides empirical evidence that such clustering behavior is largely due to CEOs managing their reputation in financial markets. To interpret these results we develop a theoretical framework in which managers delay layoffs during good economic states to avoid damaging the markets perception of their ability. The model predicts clustering in the timing of layoff announcements, and illustrates a mechanism through which the cyclicality of firms layoff policies is amplified. Our findings suggest that reputation management is an important driver of layoff policies both at daily frequencies and over the business cycle, and can have significant macroeconomic consequences