Abstract
Workforce downsizing has become a managerial practice that is nowadays widely applied by managers from all around the globe. However, research on cross-country differences in investor response to downsizings is still at its outset. Building on institutional theory, this study thus examines how differences in institutional environments influence investor behavior and response to downsizing announcements. Specifically, we posit and find that both economic institutions (i.e., union density and labor productivity) and social institutions (i.e., uncertainty avoidance and future orientation) condition the relationship between workforce downsizing and investor response. To test our hypotheses, we draw on a hand-collected international sample of 842 downsizing announcements of 136 firms from 12 countries. With this study, we contribute to current research in the international business literature on how investor behavior is influenced by institutions as well as to workforce downsizing literature.
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