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

RePEc Short ID: ppi165
ORCID iD: 0000-0002-5989-4999

Bordeman, Adam; Kannan, Bharadwaj; Pinheiro, Roberto

doi:10.26509/frbc-wp-201610r

Working Paper

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.

Keywords: Firm characteristics; Mass Layoffs; Rivals;

JEL Classification: G14; J63;

https://doi.org/10.26509/frbc-wp-201610r