Market Reactions to Downsizing Announcements – the Role of Strategy and Knowledge Intensity
Japanese firms are generally less likely to execute radical downsizing measures. Confronted with legal and societal restrictions to lay off large numbers of employees, they implemented several adaptive downsizing strategies, such as early/voluntary retirement, transfers to subsidiaries (Shukkō/Tenseki), hiring freezes, lay-offs of non-regular employees, and wage-cuts. To get a more nuanced understanding of these adaptive strategies, I collected a unique dataset on corporate downsizing actions from the Nihon Keizai Shimbun (Japan’s premier business newspaper) for the time period 2007-2009.
Building on the resource-based view of the firm, I study how these strategic choices affect the likelihood of losing critical organizational knowledge and in turn, how these strategies affect investor response to downsizing announcements. Further, I show that investor response to downsizing strategies is highly contingent on the knowledge intensity of the firm.
Daniel Ehnes, Goethe University Frankfurt