Vaasan yliopiston opinnäytteet

Kauppatieteellinen tiedekunta, 2016

Vänskä, Veera

Stock Market Reactions to Layoff Announcements: Ownership Structure

Ohjaaja/Valvoja (DI):
Janne Äijö
Kauppatieteiden maisteri
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
Tutkielman kieli:
Earlier studies have shown that layoff announcements cause negative and significant stock price reactions. However, some studies have also found that investors react positively to corporate layoff announcements. Thus, the results have been mixed. The research has also shown that the ownership structure of firms is affecting firm values and performance. Therefore, the purpose of this study is to examine the stock market reactions to layoff announcements in Finland and does the reaction diverge between firms with different ownership structures. The sample firms are divided into six different ownership structure groups: state, family/person, foreign, institutional and concentrated or diffused ownership firms. In addition, the effect of business cycle, the reason for layoff and the size of the layoff are examined. The theoretical framework of this study includes market efficiency and stock valuation.

The sample of this study includes 186 layoff announcements during the research period 2007–2014. Event study methodology is used to study the stock market reactions. The event window is 11 days, starting five days prior the announcement and ending five days after the announcement. Furthermore, the cumulative abnormal returns are tested with two OLS regression models, which include dummy variables for different ownership groups, layoff reason and business cycle, a control variable for layoff size and layoff reason interaction term.

The results indicate that layoff announcements cause negative and statistically significant stock market reaction. The regression results show that the state ownership dummy is positive and significant. Thus, state ownership has a positive impact on the stock market reaction to layoff announcements. Therefore, the hypothesis that layoff announcements effects diverge between different ownership structure firms can be accepted. Furthermore, interaction term regression results show that concentrated ownership firms which announce reactive layoff reason have negative and significant effect on the stock price response.
Layoff announcement, Abnormal return, Ownership structure, Event study
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