Abstract
We examine how employee layoffs, an action that lowers a firm’s social performance, affect stakeholders’ wealth and contract terms. We find that although layoff-performance sensitivity is similar between firms with high and low corporate social responsibility (CSR) performance, high CSR firms’ shareholders, suppliers, and bondholders realize more negative returns from layoff announcements than those of low CSR firms. After layoffs, these firms also experience greater deterioration in supplier relationships, operating performance, and CSR investment and a larger increase in loan rates. The results suggest that high CSR firms’ layoffs signal their weak future prospects and deterioration in stakeholder relationships.
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