Corporate diversification and downsizing decisions: International evidence from sharp and sudden performance shocks
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Authors
Ataullah, A
Le, H
Wang, Z
Wood, G
Publication Date
2022-07Journal Title
International Review of Financial Analysis
ISSN
1057-5219
Publisher
Elsevier BV
Type
Article
This Version
VoR
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Ataullah, A., Le, H., Wang, Z., & Wood, G. (2022). Corporate diversification and downsizing decisions: International evidence from sharp and sudden performance shocks. International Review of Financial Analysis https://doi.org/10.1016/j.irfa.2022.102203
Abstract
While firms regularly reduce workforce following sharp performance decline, diversified firms may abstain from employment downsizing by transferring capital and labor between segments (the allocative flexibility effect). However, downsizing may be more likely if a performance shock leads to efforts to reduce inefficiency in resource allocation (the inefficient internal market effect). Using a large cross-country dataset, our results provide strong support for the inefficient internal market effect. We find that diversified firms are more likely to downsize and the national employment protection and union power laws moderate this link. We also find that diversified firms with more excess employment are more likely to downsize and that downsizing following major adverse performance shocks
is associated with lower level of diversification and excess employment.
Identifiers
External DOI: https://doi.org/10.1016/j.irfa.2022.102203
This record's URL: https://www.repository.cam.ac.uk/handle/1810/337141
Rights
Attribution-NonCommercial-NoDerivatives 4.0 International
Licence URL: https://creativecommons.org/licenses/by-nc-nd/4.0/
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