Section Fivefound that shareholder returns two years after the downturn
were positively related with the measure of countercyclical
hiring.^26
Downsizing
Downsizing has been the subject of a great deal of normative
discussion in both the popular press and academic literature.^27
A void in this literature was its failure to address the financial
impact of downsizing. However, a comprehensive study has
examined the effects of downsizing. This study analyzed 5,479
instances of downsizing over a 15-year period. The study
examined the impact of downsizing on firm profitability (ROA)
as well as shareholder return. Interestingly, the study found
that downsizing firms did not obtain significantly greater
returns than the average for firms in their industries. However,
firms that pursued a combined approach of coupling downsizing
with a restructuring of their assets (plant and equipment) had
substantially higher returns on assets two years later than
those that only downsized. More impressively, after adjusting
for industry, those firms combining employment and asset
downsizing had substantially greater ROAs two years later than
stable as well as employment-downsizing firms. These results
indicate the importance of coordinated approaches in which
downsizing is complementary with the firm’s overall strategies,
such as focus or retrenchment, in which plant and equipment
are downsized as well.^28