The changing relationship between job loss announcements and stock prices: 1970–1999 |
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| Authors: | Henry S Farber Kevin F Hallock |
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| Institution: | 1. Princeton University, IZA, and NBER, United States;2. Cornell University and NBER, United States;1. Department of Urology, Research Institute for Convergence of Biomedical Science and Technology, Pusan National University Yangsan Hospital, Pusan National University School of Medicine, Yangsan, Korea;2. Department of Urology and Urological Science Institute, Yonsei University College of Medicine, Seoul, Korea;1. Department of Experimental Medicine and Surgery, University of Rome “Tor Vergata”, Rome, Italy;2. Hepatology Unit, University Hospital of Rome “Tor Vergata”, Rome, Italy;3. Unit of Microbiology, Hospital Sacco of Milan, Milan, Italy;4. Infectious Disease Clinic, Chieti, Italy;5. Infectious Disease Unit, Pescara General Hospital, Pescara, Italy;6. Infectious Diseases Unit, Department of Clinical and Experimental Medicine, University of Sassari, Italy;7. “La Sapienza” University, Rome, Italy;8. S. Martino Hospital, Genova, Italy;9. Hepatology Unit, National Institute of Health, Migration and Poverty, Rome, Italy;10. Infectious Disease, University Hospital of Rome “Tor Vergata”, Rome, Italy;11. Gastroenterology, Catholic University of Rome, Rome, Italy;12. Division of Infectious Disease, Hospital Sacco of Milan, Milan, Italy;13. Hepatology Unit, San Camillo Forlanini Hospital, Rome, Italy;1. Experimental Therapeutics and Pathophysiology Branch, National Institute of Mental Health, National Institutes of Health, Bethesda, MD, USA;2. The Department of Bioethics, Clinical Center, National Institutes of Health, Bethesda, MD, USA |
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| Abstract: | We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of 4273 such announcements in 1160 large firms during the 1970–99 period collected from the Wall Street Journal. We note that the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction positive) of the distribution of stock market reactions, measured by the cumulative excess returns (CER) of firms' stock prices over a 3-day event window centered on the announcement date, as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We estimate multivariate regression models of the CER controlling for the stated reason for the announced layoff, industry, and other characteristics of the announced layoff. We find that almost none of the decline in the negative average stock price reaction between the 1970s and 1990s can be explained by these factors. |
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