The market reaction to layoff announcements: a union‐nonunion comparison

Abstract

Purpose

The purpose of this paper is to compare the market reaction to layoff announcements of union and nonunion employees.

Design/methodology/approach

Event study methodology was utilized to assess the effects of layoff announcements of union versus nonunion employees. The union status of the laid‐off employees was determined for 135 layoff announcements reported in the Wall Street Journal in 1993 and 1994 and shareholder returns between the two groups was compared.

Findings

Over each event period tested, the market reaction was more negative when nonunion employees were downsized than when the announcement concerned unionized employees. Over the two days surrounding the announcement, the market reaction to the layoff announcement of unionized employees was actually positive, while the reaction was negative when nonunion employees were the subject of the announcement.

Research limitations/implications

The sample included layoff announcements from 1993 and 1994 only. The market reaction to announcements in different years might be different.

Originality/value

While many papers have examined the market reaction to layoff announcements, this is the first paper that compares the reaction to union versus nonunion employees.

Citation

Abraham, S.E. (2006), "The market reaction to layoff announcements: a union‐nonunion comparison", International Journal of Manpower, Vol. 27 No. 5, pp. 452-466. https://doi.org/10.1108/01437720610683958