LAYOFF ANNOUNCEMENTS - STOCK-MARKET IMPACT AND FINANCIAL PERFORMANCE

Layoff decisions induced by unexpected adverse market conditions shoul d be associated with declines in profitability measures and firm value s, while unexpected layoff decisions resulting from improved efficienc y should be associated with improved profitability measures and higher firm values. We demonstrate that future performance measures are asso ciated with the reasons cited by management in layoff announcements, a nd that investors consider these reasons as credible signals of future performance. This implies that investors consider layoffs an effectiv e cost-reduction tool that enhances firm value, but they deem that lay off decisions which are induced by adverse market conditions connote n egative information.