Abstract
Abstract In this study, we examine stock market reactions to corporate downsizing using a neo-institutional perspective. Over the course of the 1990s, a time period in which shareholder value orientation gained momentum, downsizing became an institutionalized management practice. We argue and propose that the growing legitimacy of this practice is displayed in investors’ reactions to downsizing announcements. Using a sample of 391 downsizing announcements of the S&P 100 firms for the period 1990–2006, we show that the announcement year has a positive (diminishing) effect on the abnormal stock market return and that prior downsizings in the focal firm’s institutional field have a positive linear impact on abnormal stock market return. In addition, we provide evidence that these relationships are positively moderated by proactive downsizing motives and firm size. Our results contribute to a deeper understanding of the performance effects of corporate downsizing and investors’ role in legitimizing this prevalent business practice.
Published Version
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