Human Capital Reorganizations and Market Performance: U.S. Firms

Abstract

This empirical examination of human capital reorganizations uses Standard and Poor’s large, mid and small cap firms and demonstrates that the typical market response is suggestive of what casual empiricism would suggest: firms undertake work force reductions in periods of poor performance. Though the average firm experiences negative price impacts, nearly half (45%) do not. Firm size and technological intensity matter in impacting the negative abnormal results.  Bankruptcy potential and financial distress do not appear to be significant indicators. The peace dividend following the Cold War (1992-1997), white collar outsourcing (1995-2009) and the savings and loan crash (1985-1995) have a dampening effect on the market response to layoffs and other human capital restructurings. Regulatory change and changes in foreign competition have a minor impact. During business cycle downturns our sample has a smaller response to layoff announcements. Offshoring and financing changes intensify the market effect whereas asset changes have a positive impact. Changes in business focus and changes in technology seem to have no impact on the market response to layoffs decisions.