Abstract
The increasing frequency of workforce downsizing is puzzling since downsizing has negative reputational effects and it is highly uncertain whether downsizing leads to the intended improvements in firm financial performance. With our empirical study, which is based on an analysis of 262 firms over a 12 year period, we contribute to an enhanced understanding of managers’ motivation to downsize. Specifically, our findings indicate that managers downsize more if they have prior downsizing experience. Further, we find that stock option compensation incentivizes managers to downsize and that this incentivizing effect is particularly high if managers have received positive stock market feedback to prior downsizings. Collectively, our work adds to literature on workforce downsizing, managerial cognition, and corporate governance.
Published Version
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