Downsizing and firm performance: evidence from German firm data

Abstract

This paper uses a unique dataset to study the short term effects of downsizing on operational and financial performance of large German firms. In general, productivity and profitability after downsizing are -at the best -comparable to their pre-downsizing levels. During the downsizing event, the performance even drops. Moreover we make a distinction between firms downsizing because of a business downturn and firms downsizing to increase efficiency. Especially downsizing for the latter firms appears to be unsuccessful. JEL codes: G34, L19, L25, D24

The Impact of Labour Force Reduction on the Financial Performance of Manufacturing Companies

“…Habel and Klarmann (2015) assert that organisational employee reduction is correlated to decline in customer satisfaction especially in labour intensive organisations. An additional short fall pointed out by scholars is the fact that for layoffs to improve efficiency, it must be misunderstood by employees and this results in shattered employee (Goesaert et al, 2015;Rehman and Naeem, 2012). Richter and Konig (2017) assert that the method of labour force reduction through layoffs boils down to the employer's perception of fairness and labour legislation strictness and has no significant effect on the performance of an organisation.…”

“…Although restructuring through delayering reduces payroll costs, the cost savings enjoyed are mitigated by the lower productivity of the demoted employees (Fraher, 2013 andGoesaert, Heinz andVanormelingen, 2015). The success of an organisation after restructuring activities such as delayering can prove to be disruptive to the normal pattern of doing things.…”

“…In an empirical study investigated by Kavadis and Castaner (2015) results showed that in times of poor performance, organisations that employed restructuring as a labour cost reduction method improved the performance of their organisations mitigating the inefficient bottle necks of tall organisational structures and redundant skills within an organisation. Garnero et al (2016) emphasized that organisations' on and off employment techniques have a strong positive relationship on the production efficiency of an organisation, Conversely, Goesaert et al (2015) found that organisations that reduced their labour cost with the intent of increasing production efficiency experienced great declines in production efficiency with production taking longer than it did prior to downsizing. While organisations that cut labour costs due to economic hardship only faced a disdaining drop in productive efficiency during the labour cost reduction exercises.…”

“…While organisations that cut labour costs due to economic hardship only faced a disdaining drop in productive efficiency during the labour cost reduction exercises. The drop is closely related to lower employee morale and motivation to tackle tasks at the efficient rate they used to take them prior to the downsizing event (Goesaert et al, 2015).…”

Human Capital and Organizational Performance Based on Organizational Innovation: Empirical Study on China

“…Performance presented the operation results of participants that performance should be evaluated before performance management. Goesaert, Heinz, & Vanormelingen (2015) considered that performance evaluation was similar to physical examination of an organization to evaluate the quality of the organization and the goal achievement for fi nding out problems earlier and adopting coping measures.Theperformance evaluation results were also the benefi cial reference for an organization engaging in operation activity and resource allocation as well as revising management strategies and planning future directions. Lin et al (2017) concluded that the more intensivehuman capital of an enterprise, the high value-addedwork would be higher so that the employees could not be replaced.…”