Economic links and the wealth effects of layoff announcements along the supply chain

PurposeThis paper investigates the effects of layoff announcement by customers on the valuation and operating performance of their supply chain partners.Design/methodology/approachThe authors collect corporate layoff announcements from 8-K filings submitted by US publicly-traded firms from 2004 to 2017. Using event study methodology, they examine the information externality of corporate layoffs on announcing firms' suppliers.FindingsResults show that suppliers, on average, experience a negative stock price reaction around their major customers' layoff announcements. The negative price effect is exacerbated when industry rivals of layoff-announcing customers also suffer from negative intra-industry contagion effects. Additionally, supply chain spillover effects are asymmetric, with only “bad news” layoff announcements causing significant value implications for suppliers, but not “good news” announcements. Supplier firms also reduce their investments in and sales dependence on layoff-announcing customers in subsequent years.Practical implicationsThis study shows that layoff decisions, often aimed at improving firms' efficiency and effectiveness, create uncertainty for the suppliers' operation and cause negative value implications on firms' upstream partners. Findings should be useful to corporate decision-makers in making layoff decisions.Originality/valueThis paper is one of the first to address the value implications of corporate layoffs on announcing firms' suppliers. It provides a more comprehensive picture of the economy-wide impact of achieving efficiency through employee layoffs.

Disaggregate income and wealth effects on private consumption in Greece

The Working Paper Series disseminates research papers of high quality and often of a more technical nature relevant to the various areas of interest to the Bank.They constitute "work in progress" and are published to stimulate discussion and contribute to the advancement of knowledge of economic matters. They are addressed to experts, so readers should be knowledgeable in economics.Working Papers are available in electronic format only (pdf).

Characteristics and Shareholder Wealth Effects of Mergers and Acquisitions Involving European Renewable Energy Companies

The present study documents a positive market reaction to mergers and acquisition (M&A) deals involving renewable energy companies. Acquirers record positive post-deal cumulative risk-adjusted returns upon taking over a renewable energy target, especially if the former also operates in the renewable energy sector. Such deals often involve purchases of majority equity stakes financed with acquirers’ stock rather than cash. Acquirers of renewable energy firms tend to be more profitable and cash-rich than their industry peers, yet they are less likely to be serial acquirers and channel cash reserves towards M&As. We evidence that the quality of corporate governance in the energy sector may play a substantial role in shaping the choice of targets; a director’s outside affiliations increase the likelihood of takeovers of non-energy firms, while the presence of outsiders on board appears to incentivize diversification into renewable energy. While acquisitions of renewable energy firms feature lower-than-average acquisition premia and generate positive short-term stock returns, they are found to exercise an overall negative short- and medium-term impact on the combined entities’ operating performance. Overall, capital markets appear to attach a sizeable premium to risky deals involving renewable energy firms, possibly in expectation of wealth accrual in the long term.

Wealth 2D – An alternative approach to explore wealth effects

The analysis of wealth as a predictor variable comes with several conceptual and methodological challenges with important consequences for results. We propose to employ Generalized Additive Models and jointly evaluating gross wealth and debt when exploring wealth effects to overcome the dependence of results on implausible assumptions. First, we conduct a simulation study and find that this new approach describes systematic wealth differences in more detail than the common approaches and is less likely to overfit random variation in the data. Next, we apply the new approach to re-analyze wealth gaps in educational attainment in the US. In contrast to existing research, we find that it is not negative net worth that is associated with the worst educational prospects but the combination of low gross wealth and low debt. Children in households with high gross wealth have the best prospects almost independent of household debt. The approach can be easily adapted to other research questions.

Structural Transformation, Economic Power, and Inequality in South Africa

This chapter examines how economic power, understood as control over accumulation, has influenced the poor progress of structural transformation in South Africa, which, in turn, has impacted on inequality through income and wealth effects. The chapter argues that the failure to diversify and develop downstream capabilities in manufacturing in South Africa reflects, among other things, the entrenched advantages of incumbent upstream firms, as well as the lack of a policy agenda for transformation that incorporates a recognition of the economic power of these upstream firms. The inability to change the patterns of accumulation underlies the persistent inequality in income and wealth. The chapter involves an analysis of interests in the South African economy within key industry groupings (specifically the metals and plastics value chains) and how these interests have set agendas and shaped policy and regulation to set the rules of the game for the benefit of upstream firms. The analysis shows that economic structure is a source of economic power, and that the relative strength of the upstream industries means that their interests are better served than those of diversified downstream industries.

Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010

Most empirical macroeconomic research is limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 through to 2010 for the UK, France, Germany and the USA, based on the data set of Piketty and Zucman (2014). We contribute to the study of wealth effects, of financialization, and of the nature of demand regimes. We find that overall domestic demand has been wage-led in the USA, the UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and the UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.

Addictive Law

Law, broadly defined to include group-directed rulemaking and coercion, has plainly grown over time. There are many explanations for this growth, and the evolution from self-help to law. This Article develops the idea that an important contributor to the growth of law has been the fact that law begets law, and it seeks to combine this new explanation with both traditional and more intuitive explanations for law’s expansion. That law brings on more law in an addictive way means that a society finds itself with laws, rather than personal interactions, in ways that it would have wished to avoid had it known earlier in time that law’s spectacular growth was in the making. The growth of law is thus much more than a product of specialization or wealth effects. For a variety of reasons, people prefer to avoid personal confrontation and to outsource their means of social control. This Article suggests that much of this addictive growth is inefficient and otherwise undesirable. The addiction might be controlled by rewarding some kinds of personal involvement in order to overcome the inclination to outsource.