## Strategic Corporate Layoffs

_IMF Working Papers, December 28, 2016_

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## Bibliographic details
- Authors: Ruchir Agarwal, Julian Kolev
- Published: December 28, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475563924.001

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### Summary and key findings
- Firms in the S&P 500 often announce layoffs within days of one another.
- The average S&P 500 constituent announces layoffs once every 5 years.
- Similar-sized privately-held firms do not behave in this clustered way.
- Empirical evidence indicates clustering behavior is largely due to CEOs managing their reputation in financial markets.
- Managers delay layoffs during good economic states to avoid damaging the market's perception of their ability.
- The model predicts clustering in the timing of layoff announcements and shows a mechanism that amplifies the cyclicality of firms' layoff policies.
- Reputation management is an important driver of layoff policies both at daily frequencies and over the business cycle, and can have significant macroeconomic consequences.

### Theoretical framework and mechanisms
- Managers strategically time layoff announcements to influence market perceptions of ability.
- Delay of layoffs during good states generates concentrated announcement timing (clustering).
- The framework links individual managerial incentives to aggregate cyclical amplification of layoff policies.

### Implications and macroeconomic consequences
- Clustering of layoff announcements can amplify business-cycle dynamics.
- Reputation-driven timing decisions by CEOs can affect aggregate labor market outcomes and stock market reactions.
- Strategic timing at daily frequencies accumulates into broader cyclical effects.

### Subjects and keywords (as listed)
- Subject: Business cycles, Economic growth, Financial markets, Labor, Labor force, Stock markets, Wages
- Keywords: business cycle, business cycles, clustering, firm level, Labor force, layoff, layoff announcement, layoff propensity, private firm, public firm, reputation management, Stock markets, Wages, WP

*IMF Working Papers — "Strategic Corporate Layoffs", Ruchir Agarwal and Julian Kolev, December 28, 2016.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/strategic-corporate-layoffs-44504_