Corporate diversification and downsizing decisions: International evidence from sharp and sudden performance shocks

While firms regularly reduce workforce following sharp performance decline, diversified may abstain from employment downsizing by transferring capital and labor between segments (the allocative flexibility effect). However, be more likely if a shock leads to efforts inefficiency in resource allocation inefficient internal market Using large cross-country dataset, our results provide strong support for the effect. We find that are downsize national protection union power laws moderate this link. also with excess major adverse shocks is associated lower level of diversification employment.