Section Five
Another study found negative effects from the
announcement of temporary staff reductions. Results of the
study indicated that temporary staff reductions produced
declines in shareholder returns. However, the researchers
cautioned that these results are complicated by the fact that
temporary layoffs, which convey a positive message about
lower compensation costs, also communicate bad news about
product demand.^29
Early Retirement Programs
In the 1980s and 1990s, offers of early retirement became a
regular news feature of the business press, although there was
little evidence about the financial effects of such practices.
Fortunately, an empirical study has examined the effects of
early retirement practices on shareholder wealth. This study,
which analyzed 51 announcements of early retirement
programs, found that the effects were dependent on the firm’s
performance before the announcement. For those firms having
declining shareholder returns during the year prior to the
announcement, there was no relationship with announcements
of early retirement programs. For those firms that had good
returns, the announcement had a positive impact on
shareholder returns.^30 One potential explanation for the signifi-
cant results is that “Proactive downsizing made when a firm is
doing well may signal an intended reorientation of personnel