Downsizing and Firm Performance: Panacea or Paradise Lost?

The article presents findings which investigated the effectiveness of downsizing as a mechanism for improving shareholders' wealth. The author believes the logic behind the practice is to cut ineffective processes and excessive bureaucracy in order to make the company a more efficient corporate machine, which will improve stock price performance. A study of 537 companies from the Standard and Poor's 500 questioned whether this commonly held belief is true. The study found that companies who focus on downsizing employees saw a 14 percent decline in their return on assets, while companies that downsized their assets saw a four percent increase in their return on assets.