Publication: Downsizing implementation and financial performance
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2008-06
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Abstract
In the present study we explore the relationship between downsizing decisions and corporate financial
performance after top management has decided to downsize. Our focus is on the financial consequences
arising from the amount of downsizing and the use of disengagement incentives. For this purpose, we use
a sample of downsizing announcements in the Spanish press from 1995 up to 2001. Although the results
show that the amount of downsizing is not significantly related to post-downsizing profitability, the
evidence provided supports the finding that the use of disengagement incentives (which motivate workers
to leave the organization) is negatively related to firm performance. Our analysis helps to understand the
role that strategic downsizing decisions play in explaining observed variance in the performance of
downsized firms. Thus, it advances scholarly organizational research by reinforcing the concept that
corporate performance is not only contingent on strategies, but also influenced by the means through
which these strategies are implemented.
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Downsizing, Disengagement incentives, Corporate performance, Spanish labour market