Downsizing implementation and financial performance

Purpose – The objective of this paper is to analyze whether the way that downsizing is implemented has any impact on the firm's performance. Design/methodology/approach – The sample under investigation consists of a set of Spanish companies, which downsized between 1995 and 2001. The paper includes downsizing announcements and combines information from two different datasets (BARATZ and SABI). The focus is placed on the size of downsizing and the use of disengagement incentives. Findings – A negative relationship between the size of downsizing and post‐downsizing corporate performance is found. In particular, firms which announced severe downsizing experience relatively lower performance in the year following the announcement. Originality/value – The analysis advances organizational research by reinforcing the concept that firm performance is not only contingent on strategies, but also influenced by the means through which these strategies are implemented.