The Effects Of Employee Layoffs Announcements On Stock Returns Of Firms Listed At The Nairobi Securities Exchange

Abstract

This paper deliberates on the effects of announcements of employee layoffs on short term stock price of firms listed at the NSE. These market responses to announcements of layoffs are as a result of investors’ perception about the information content of those layoffs. Those reactions are examined in this study using a sample of companies that had made employee layoff announcements in the NSE between the year 2013 and 2016. There has been no consensus on how capital markets generally respond to effects of corporate layoffs on stock returns and thus the objective of this study was to investigate effects of employee layoff announcements on short term share prices of firms listed at the NSE. Data of six publicly released layoff announcements of the companies quoted at the NSE were collected for the three-year period from year 2013 to year 2016. To study the share price reaction to layoffs, an event study technique and Microsoft excel as a statistical tool, were used to analyse data and significance level testing of the findings using a two tailed t statistic at 95% significance level. Averagely investors perceive layoffs as positive news for the company making those announcements. Pre- Employee layoffs announcement response to is affirmative, supportive of the U.S. and U.K. markets’ results. However, as opposed to many prior studies, the response is apprehended fully a day before the actual news officially reaches the NSE. This study revealed that stock prices and returns changed insignificantly after the day of official announcement to the bourse than it was before. A closer look at the average abnormal return revealed that announcements of employee layoffs produced either positive or negative stock returns. Generally, based on the general CAAR, this paper concludes that employee layoffs announcements results into a positive abnormal stock returns on quoted companies.