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Downsizing and Firm Performance: Panacea or Paradise Lost?

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Kevin B. Lowe, Professor and Department Head (Creator)
Institution
The University of North Carolina at Greensboro (UNCG )
Web Site: http://library.uncg.edu/

Abstract: Downsizing fat and sluggish firms to create lean and mean corporate machines has become a recurring theme in business practices. Consistent with the leaner and meaner mantra is the prevailing belief that downsizing will improve financial indicators and ultimately improve stock price performance. The prevailing logic is straightforward. Firms are bloated and performing poorly due to inefficient processes and excessive bureaucracy. To remedy these inefficiencies organizations need to be rightsized to improve productivity and reduce costs. Whether the rightsizing initiative takes the form of workforce reductions, asset reductions, or both, the decreased costs are expected to either increase earnings via margin improvements or improve competitiveness through greater flexibility. Better earnings and improved competitiveness should logically lead to better financial performance and drive the stock price upward. But is downsizing really an effective mechanism for improving shareholder wealth?

Additional Information

Publication
The Academy of Management Executive. 12(4), 130-132
Language: English
Date: 1998
Keywords
Downsizing, Increase earnings, Improved competitiveness