Competitive and Contagion Effects in Corporate Layoff Announcements
We find strong evidence of intra-industry information transmission to employee layoff announcements. Although the stock price response for the full sample of industry rivals is weakly positive and consistent with a net competitive effect, we find evidence that contagion and competitive effects could happen simultaneously. Results consistent with the contagion effect are observed for low-leverage rivals that have high a Tobin's q and belong to industries where the layoff announcement contained adverse information regarding the industry. Results consistent with the competitive effect are observed for rivals that are large, efficient and belong to industries of firms whose layoff announcement did not contain any adverse information regarding the industry or when a dominant firm in the industry announces layoffs. Overall, portfolio and cross-sectional analyses provide results that are generally consistent with a net competitive effect.