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Federal Reserve Bank of Cleveland
Working Papers (New Series)
Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements
Adam Bordeman
Bharadwaj Kannan
Roberto Pinheiro

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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Adam Bordeman & Bharadwaj Kannan & Roberto Pinheiro, Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements, Federal Reserve Bank of Cleveland, Working Papers (New Series) 161001, 18 Apr 2016, revised 31 Aug 2018.
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Note: This is a revision of Working Paper 16-10 "Competitors' Stock Price Reaction to Mass Layoff Announcements"
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Keywords: Mass Layoffs; Rivals; Firm characteristics
DOI: 10.26509/frbc-wp-201610r
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