Do Layoffs Payoff? An Empirical Investigation of Financial Impacts of IT Worker Downsizing

Recent years have been characterized by massive layoffs of IT workers – primarily triggered by declining corporate profitability and increased off-shoring of IT work. However, it is unclear whether IT worker downsizing has generated any economic returns or business performance improvements for IT firms. In this study, our primary objective is to investigate the financial performance impacts of IT worker layoffs. Drawing upon the human capital and knowledge-based theories, we propose a research model linking the layoff approach and layoff size to post-layoff financial performance of IT firms. Our findings reveal that, IT firms do not improve their overall financial performance, relative to their industry, by downsizing IT workers. When comparing financial performance of downsizing IT firms, IT firms adopting a strategic approach to downsizing IT workers see better performance than those who take a tactical approach. Size of IT layoff does not appear to impact post-layoff financial performance.