Layoff Announcements and Stock Market Reactions: How Relative Size and Strategic Motive Determine Investor Response

Abstract

When a company announces mass layoffs, investors do not always react the same way. Some layoffs cause stock prices to drop sharply while others barely move the market. Prior studies suggested that the reason behind a layoff matters, but no research had tested this using recent data. This study investigates whether layoff size relative to the company and the motive behind the decision can predict how investors respond. We collected 6,560 WARN ACT notices from California, Texas, and Oregon between 2022 and 2025 and matched 615 events to publicly traded firms. Using a market model event study, we measured how much stock moved compared to what was expected around the time of each announcement. On average, stocks dropped 1.59 percent over five days following an announcement, but only 49 percent of companies saw their stock go down, confirming the market does not punish every layoff equally. Relative layoff size was a strong predictor of investor reaction. Small firms cutting a large share of their workforce dropped 3.9 percent on average, while large firms saw almost no movement. Raw headcount had no meaningful effect. The government WARN form’s closure checkbox failed to capture motive because it lacked the precision needed to detect effects this small. After reading 284 company press releases, we found that strategically framed layoffs produced 1.9 percentage points lower than non-strategic ones. Investors respond to the proportion of the workforce cut and how the company frames the decision, not simply the number of people laid off.