Literature Review Women on boards and in TMTS and firm performance148 5 7 Conclusion The present paper analyzes the effect of layoff announcements by banks headquartered in the United States and Western Europe on shareholder wealth On the whole capital markets do respond to layoff announcements with significant negative abnormal returns in event windows up to eleven days around the announcement date The observed negative market response supports the declining investment opportunities hypothesis From the ca pital markets perspective the announcements of planned redundancies convey negative information about a bank s current status and also its future prospects including poor investment or growth op portunities or uncertain future cash flows Capital markets seem to recognize and assess the risk as sociated with the loss of human capital Through releasing employees banks risk losing both their key source of earnings and their main links to the customers Hence the detriments associated with the staff cuts weigh more heavily compared with the potential benefits from cost savings One exception to this is investment banking shareholders consider dismissals of employees from this division as positive Results are significant in the three days event window Expected positive effects are most likely the substantial cost savings due to the high salary levels in investment banking as well as a reduction of risks associated with the shrinking of the division Furthermore capital markets seem to be sensitive to the reasoning behind the planned redundancies Indeed the negative share price reaction is less pronounced if the planned layoffs are perceived as a proactive measure aiming at reducing costs or increasing efficiency The negative market response is more pronounced if the underlying strategy is perceived as reactive to adverse market conditions or poor past financial performance Shareholders might perceive large scale dismissals rather as an act of desperation than as a chance for a turn around Surprisingly the layoff size does not have a signi ficant impact on direction and magnitude of the abnormal stock return Contrary to my expectations the country specific strictness of employment protection legislation ap pears to be no relevant factor to valuation I analy ze abnormal returns following announcements of US based banks known to have the least stringent employment protection legislation versus those of Europe based banks This univariate analysis yields as a result that returns for layoffs announcements made by non US banks are notably stronger ne gative However the differences between both subsamples are statistically insignificant The mul tivariate analysis uses an alternative model and considers additional countries besides the US as having strict employment protection laws It pro duces similar results I also find no statistically sig nificant effect of the strictness of national emplo yment protection law on abnormal stock returns In summary the results suggest that layoff an nouncements by banks generally have a decreas ing effect on shareholder value The owners of the firm do not benefit from collective dismissals at the expense of employees at least in the short term Contrary to popular opinion capital markets do not perceive a reduction in workforce as a value enhancing measure Layoffs and shareholder wealth

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 148
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