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Deutsches Institut für Japanstudien
Event Series
September 8, 2022

DIJ Study Group with Cornelia Storz compares flexible and rigid retrenchment strategies

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Firms in many advanced economies practice flexible retrenchment strategies to react to a crisis or to adjust to organisational decline in order to lower labour costs. Building on signalling theory and the neo-institutional and resource-based view, this presentation analyses two research questions: (1) What are the effects of “flexible retrenchment strategies” (such as wage-based and functional flexibility) on investor reactions as compared to “rigid strategies” (such as pure downsizing)? (2) How do a firm’s knowledge assets shape the relationship between investor reactions to flexible strategies as compared to rigid strategies? Using a novel data set of 242 retrenchment announcements by Japanese firms, the study finds that flexible strategies are significantly and positively associated with a higher likelihood that the firm value of retrenchers increases. This suggests that investors perceive flexible strategies as a capability signal, rewarding innovative firms depending heavily on the knowledge of their employees. Details and registration here

Cornelia Storz, Goethe University Frankfurt