UK's Stock Market Reactions to Layoff Announcements

By Jonathan Vu and Jonathan Inc. Vu

Business & Economics : Development - Business Development

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Publication date: August 2012

ISBN: 9781456609849

Digital Book format: ePub (Adobe DRM)

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This research aims to examine the relationship between stock market reactions and layoff announcements. The scene is set under UK market in 2007 – 2009. The term layoff announcements, in this paper, refer to companies' announcements of reduction in the workforce both temporarily and permanently.

The research is carried out by adopting deductive approach which leads to the formations of eight testable hypotheses about general market reactions to layoff announcements and different market reactions to layoff announcements with different characteristics.

The research method used is event study for comparing the actual shareholder return to a firm given the event of layoff announcement to the share holder return that would have occurred with the assumption that the event did not happen.

The hypotheses are tested using a sample of 79 layoff announcements by 51 UK listed companies during the period of January 2007-August 2009.

Results from this research show sufficient evidence that:
- Market reacts negatively to layoff announcements in general.
- Medium layoffs (5-10%) receive the strongest market reactions
- Market react negative and more strongly towards reactive layoffs compare with positive and weaker market reactions to proactive layoffs
- Market reacts more favourably to layoff announcements from services to manufacturing, and from financial to non-financial sectors.