New Evidence Regarding Organizational Downsizing and a Firm's Financial Performance: A Long-term Analysis

摘要

This investigation extends the research of Cascio (1998) and De Meuse, Bergmann, and Vanderheiden (1994) by tracking five financial indices of corporate performance over a 12-year period—1987 through 1998. The study measured (a) profit margin, (b) return on assets, (c) return on equity, (d) asset efficiency, and (e) market-to-book ratios of Fortune 100 companies two years before downsizing, the year of downsizing, and the subsequent nine years after downsizing. When compared to a set of companies which had not downsized during this period, the downsized companies generally experienced lower performance during the initial few years following the downsizing, but then improved to a similar level to the non-downsizing companies. Although the frequency of announced layoffs appeared to have little effect on the firms' financial performance, the size of the layoff was related to performance up to seven years following downsizing. Overall, the findings suggest that when a firm implements downsizing, it will take several years before its financial health will re-emerge.