Announcing a layoff decision could trigger either an increase or decrease in firm value, depending upon whether adverse market conditions or efficiency improvement are motivating it. Layoff announcements often contain information that indicates the motivation. This article finds that the layoff announcement is a useful signal for investors. There are significantly positive (negative) abnormal stock returns around the announcement date for firms that cite efficiency improvements (demand declines) as the reason for the layoffs.
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Palmon et al. (1997) studied this question.
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