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The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain

Author

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  • Friebel, Guido

    (Goethe University Frankfurt)

  • Heinz, Matthias

    (University of Cologne)

  • Zubanov, Nick

    (University of Konstanz)

Abstract

We estimate the effect of downsizing announcement on workplace performance using data from a German bakery chain of 193 shops. Faced with intensified competition, the firm decided to sell or close down 57 of its worst performing shops. We identify the effect of downsizing from a plausibly exogenous variation in the timing of the sale or closure announcement in the individual shops. We find that the announcements of the shop being sold to a new owner and being closed down reduce sales by six and 21 percent, respectively. The negative effect of downsizing increases with the share of workers with a permanent contract, even though permanent workers faced a much lower unemployment risk. We relate our findings to the literatures on downsizing and psychological contract.

Suggested Citation

  • Friebel, Guido & Heinz, Matthias & Zubanov, Nick, 2016. "The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain," IZA Discussion Papers 9739, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9739
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    References listed on IDEAS

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    5. Guido Friebel & Gerard McCullough & Laura Padilla Angulo, 2014. "Patterns of Restructuring The US Class 1 Railroads from 1984 to 2004," Journal of Transport Economics and Policy, University of Bath, vol. 48(1), pages 115-135, January.
    6. Friebel, Guido & Heinz, Matthias, 2014. "Media slant against foreign owners: Downsizing," Journal of Public Economics, Elsevier, vol. 120(C), pages 97-106.
    7. Donald S. Siegel & Kenneth L. Simons, 2010. "Assessing the effects of mergers and acquisitions on firm performance, plant productivity, and workers: newl evidence from matched employer‐employee data," Strategic Management Journal, Wiley Blackwell, vol. 31(8), pages 903-916, August.
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    Cited by:

    1. Anas Abdulbaset Abbas, 2018. "Influence of Informal Groups on Productivity: A Case Study on Philadelphia Pharmaceuticals Company," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 421-435, July.
    2. Ritter-Hayashi, D. & Knoben, Joris & Vermeulen, P.A.M., 2018. "Success Belongs to the Flexible Firm : How Labor Flexibility Can Retain Firm Innovativeness in Times of Downsizing," Other publications TiSEM 749e1bae-6946-40cb-a5fc-e, Tilburg University, School of Economics and Management.
    3. Kao, Chun-Lin & Chen, Ming-Yuan, 2020. "Employee downsizing, financial constraints, and production efficiency of firms," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 59-73.
    4. Manthei, Kathrin & Sliwka, Dirk & Vogelsang, Timo, 2017. "Performance Pay May Not Raise Performance – A Cautionary Tale Based On Evidence from Large Scale Field Experiments in a Retail Chain," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168287, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    downsizing; psychological contract; retail; teams; statistical analysis;
    All these keywords.

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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