Title

Information Asymmetries, Managerial Ownership, and the Impact of Layoff Announcements on Shareholder Wealth

Document Type

Article

Publication Title

Quarterly Journal of Business and Economics

ISSN

07475535

Volume

40

Issue

2

First Page

31

47

Publication Date

4-1-2001

Abstract

This paper tests the impact of layoff announcements on share price returns with respect to the magnitude of the layoff on the total firm workforce, the level of inside ownership, and the firm size; while controlling for the number of employees, the level of institutional ownership, and profitability. We find a statistically significant negative share price response associated with layoff announcements, with layoffs constituting a greater percentage of a firm's workforce resulting in larger negative share price responses. Using an information asymmetry framework, we discover that firm size significantly explains the cross-sectional distribution of share price responses to layoff announcements. We find no evidence of a relationship between insider ownership and share price response to layoff announcements.