BBSF Research Projects (2017)

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Impact of layoff announcements on stock performance of firms listed on the Nairobi securities exchange.
(Strathmore University, 2017) Birech, Joyce Jelimo
Despite vast research on the impact of layoff announcements on stock price performance in developed markets, little is known of the same with regard to the Kenyan market. To this end, this study sought to determine the strength and nature of the relationship between layoff announcements and stock price performance for firms listed on the NSE. The study also set out to investigate the nature of the relationship between the reason for the layoff, as provided by management, and stock price reaction. To conduct the research, a sample often firms that had made layoff announcements over the period spanning 2011-2016 were studied so as to check whether there were any abnormal returns observed during the period surrounding the layoff announcement. To facilitate this, an event study methodology was used with an estimation period of 120 days and a 21-day event window. The findings of the study reveal that there exists no statistically significant relationship between layoff announcements and stock price reaction. However, the reason guiding the layoff decision has an impact on stock price movement. For layoffs that are proactive in nature, stock prices react positively but in cases where the layoff is reactive in nature, there is no impact on the stock price reaction.