Layoff announcements and stock returns: Empirical evidence with Finnish data from 2003 to 2006

Abstract

The purpose of this study is to find out whether announcements of cooperation negotiations and therefore possible layoffs have an impact on stock returns. Such announcements can be associated with either an increase or a decrease in firm value depending on the cited reason for starting the negotiations.

28 Finnish companies are divided into two subsamples according to the reason they cite for starting cooperation negotiations. Statistical procedures are conducted to find out whether the two-day, three-day and twelve-day abnormal returns are statistically negative or positive. Ordinary least squares procedure is used to test the relation between two-day cumulative abnormal return, possible layoff size and firm size.

According to the results, the abnormal returns are statistically negative on the two- and three-day periods for the firms that cite adverse market conditions as a reason for starting cooperation negotiations. The positive abnormal returns are not statistically different from zero. The results also show that the size of the firms in the efficiency-enhancing subsample may help investors to infer changes in firm values when they are announcing about cooperation negotiations.