Capelle-Blancard, Gunther, and Nicholas Couderc. "How Do Shareholders Respond to Downsizing? A Meta-Analysis." Working Paper, Pantheon Sorbonne Economie, 2007.

This meta-analysis reviews 41 event studies of shareholder reaction to layoff announcements conducted between 1996 and 2006 (for more on the pros and cons of event study methodology see Fama (1969), MacKinlay (1997) and McWilliams and Siegel (1996)). The studies reviewed use data covering the 1970-2001 time period, and analyze 15,000 layoff announcements in 14 countries.

The meta analysis approach used by the authors is still relatively new in investment studies, but is well-established in the hard sciences (particularly in medical research), and was employed by Orlitzky (2004) in his groundbreaking review of the literature of corporate social responsibility.

There are several key findings:

"Redundancy announcements have an overall negative impact on the stock price of the companies in involved." p values were vanishingly small, with z statistics ranging from -8.0 to -13.9 depending on the event study methodology employed.

The initial negative initial reaction seems to persist over time, although the results are not a clear-cut here.

These reactions are uniform across countries - dummy variables for each country were not significant, and a "Non_Anglo" variable had no explanatory power.

The reason given for the layoffs matters. 'Reactive' layoffs result in negative reaction, while 'Proactive' announcements - those which indicate an intent to restructure the firm - "are less severely sanctioned," although "the average cumulative abnormal return for proactive companies is not significantly positive, whatever the time period." The authors characterize the announcement effects as either "amplifying" or "softening" the impact of the announcement.

"The sanction is more severe when the firm's financial health is perceived as poor," and when recent stock price performance has been poor.

The first layoff announcement typically receives a more negative reaction that subsequent announcements.

The bibliography of this paper is by far the best inventory we have seen of the academic work around corporate downsizing, and would be indispensable to anyone wishing to study this topic further.

See also Worrell and Davidson (1991) and Ursel and Armstrong-Stassen (1995).