Review of Quantitative Finance and Accounting

, Volume 15, Issue 2, pp 107–126

The Effects of Downsizing on Operating Performance

  • Reza Espahbodi
  • Teresa A. John
  • Gopala Vasudevan

DOI: 10.1023/A:1008321929083

Cite this article as:
Espahbodi, R., John, T.A. & Vasudevan, G. Review of Quantitative Finance and Accounting (2000) 15: 107. doi:10.1023/A:1008321929083


We examine the performance of 118 firms that downsized between 1989–1993. We find that downsizing firms experience declines in operating performance prior to the downsizing announcement. Operating performance improves significantly following the downsizing. These firms are able to reduce the cost of sales, labor cost, capital expenditures and R&D expenditures. We also find that firms that perform poorly in their industries prior to the downsizing and have increases in assets following the downsizing have larger improvements in performance. There is some evidence that the improvements are greater for firms that increase their focus.

downsizinglayoffsoperating performancecorporate reorganizationcost control

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Reza Espahbodi
    • 1
  • Teresa A. John
    • 2
  • Gopala Vasudevan
    • 3
  1. 1.Indiana University South BendSouth Bend
  2. 2.New York UniversityNew York
  3. 3.Northeastern UniversityBoston