Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements
Abstract: 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.
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2016-04-18
Note: This is a revision of Working Paper 16-10 "Competitors' Stock Price Reaction to Mass Layoff Announcements"