Market Reactions to Downsizing Announcements: Does the Message Matter?

Abstract

This research develops and evaluates a framework regarding the impact of organization’s explanations provided in initial downsizing announcements (social accounts; excuses, justifications, denials and apologies) on stakeholder perceptions and reactions towards the downsizing event (using stock prices as a proxy for shareholder perceptions). An event history analysis of 142 downsizing announcements in Canada from 2006-2009 provides evidence that the content of the message (specifically the social account) has a moderate impact on market reactions to the announcement. The cumulative average return (CAR) of stock prices assessed the difference in stock trends at an organizational level pre and post downsizing announcement. The results suggest that the disaggregation of downsizing announcements by social accounts is warranted, as these accounts result in moderately different shareholder reactions. One year post-announcement, all accounts provided result in negative CAR with the exception of apologies. This re...