""Linking recent layoff announcements to public companies' earnings reports and stock market data, we find that the recent increase in layoff announcements came mainly from companies that attributed their layoffs to benign factors, such as restructuring driven by automation and technological advancements. But instead of going up, these stocks fell by an average of 2%. And companies that cited restructurings were punished even more harshly. As the analysts wrote, "This suggests that, despite the benign justifications offered, the equity market has perceived recent layoff announcements as a negative signal about these companies' prospects.""
""This will be a pattern to continue watching, as Goldman predicts a "potential rise" in layoffs given commentary they've been hearing during earnings season, which they say is "motivated in part by a desire to use AI to reduce labor costs." So why have investors changed their tune on restructuring-driven layoffs? The most obvious reason, Goldman's analysts assert, is that they simply don't believe what companies are saying.""
""The analysts found that companies that have announced layoffs recently have "experienced higher capex, debt, and interest expense growth and lower profit growth than comparable companies within the same industries this year." Meaning those staff cuts "might have actually been driven by more concerning reasons like the need to reduce costs to offset rising interest expense and declining profitability.""
Two types of layoffs historically produced different stock reactions: restructuring announcements tended to boost shares while layoffs from weak sales prompted selling. Analysts linking layoff announcements to earnings reports and market data find recent increases in layoffs largely attributed to benign factors like automation and technological advancement. Despite benign justifications, affected stocks fell on average 2%, with restructuring-cited firms punished more harshly. Analysts predict a potential rise in layoffs partly motivated by AI-driven labor-cost reductions. Investors appear skeptical of benign explanations because recently announcing firms showed higher capex, debt, and interest expense growth alongside lower profit growth, implying cost-driven motives.
Read at Fortune
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