how would announcing layoffs and the closing of 3 locations affect the price of a company’s stock?
Lets say a company announces that it will be laying off around 400 employees and closing 3 of its research and development locations. The premise for doing this is to make the company more prepared for future growth. So maybe it will make the stock go up. But it could also be bad news that makes the stock go down. If they are “closing” the locations does that mean they will make money off closing them. They are not technically selling divisions but closing them down.
November 11th, 2010 at 5:16 am
Well you cant really know for sure. Companies do what they do everything for their benefit. So it could mean that the stock will go down because they are going broke.
November 11th, 2010 at 6:10 am
If the market views the closing as making the company more profitable in the long-run and not as a result of a cash flow problem the stock usually rises. If the company is having financial problems and the move is seen as an act of desperation that will lead to less potential for the company the stock will sell off.
November 11th, 2010 at 6:18 am
You answered your own question, “The premise for doing this is to make the company more prepared for future growth.” In microeconomics they teach that the fastest way to cut costs in the short run is to shut down production and layoff labor. That increases profits. Which will cause the stock price to increase.
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