The financial consequences of downsizing on corporate performance: The case of General Motors.

摘要

Since the 1980s downsizing remains unabated, despite evidence that it failed to improve financial performance; this results in no net gains to stockholders. While both the definition and the reason for this movement remain controversial one plausible theory is that it emerged because of the failed conglomeration of the 1960s. This disaster forced firms to deconglomerate in the 1980s, whereas in the 1990s the movement was a reaction to trendsetters. The downsizing movement is actually a mere shift in employment from the service sector employment to the new "knowledge based" employment sector.;This is a longitudinal case study of General Motors, covering 1970 through 1999. Standard accounting measurements are used (ROA, ROE, profit margin, asset efficiency, and market-to-book ratio) as well as shareholders' value determined by the firm's market value and dividend payments. The results of this study support the literature that downsizing has no effect on financial performance and failed to maximize shareholders' wealth. However, "external shocks" were found to have a significant impact on financial performance and shareholders' wealth. There are questions about the validation of these measurements, however they remain the only viable methods because of their widespread usage, and there exists no new method to use as substitution.;The auto industry faced significant external challenges since the 1970s. GM's internal strategy of diversification and conglomeration failed, forcing it into a series of deconglomerations, which failed to improve financial performance.