The market reaction to layoff announcements: a union-nonunion comparison Steven E. Abraham Department of Marketing and Management, School of Business, State University of New York at Oswego, Oswego, New York, USA Abstract Purpose – The purpose of this paper is to compare the market reaction to layoff announcements of union and nonunion employees. Design/methodology/approach – Event study methodology was utilized to assess the effects of layoff announcements of union versus nonunion employees. The union status of the laid-off employees was determined for 135 layoff announcements reported in the Wall Street Journal in 1993 and 1994 and shareholder returns between the two groups was compared. Findings – Over each event period tested, the market reaction was more negative when nonunion employees were downsized than when the announcement concerned unionized employees. Over the two days surrounding the announcement, the market reaction to the layoff announcement of unionized employees was actually positive, while the reaction was negative when nonunion employees were the subject of the announcement. Research limitations/implications – The sample included layoff announcements from 1993 and 1994 only. The market reaction to announcements in different years might be different. Originality/value – While many papers have examined the market reaction to layoff announcements, this is the first paper that compares the reaction to union versus nonunion employees. Keywords Trade unions, Downsizing, Employees Paper type Research paper Introduction Since the late 1980s, “downsizing” has become a common term in the business literature, as many firms have implemented layoffs for a variety of reasons. As layoffs have become a common practice among firms, researchers have been studying empirically the effects of layoffs and layoff announcements (“LAs”) on firms. A frequent research design is the use of event study methodology to investigate the stock market reaction to LAs. The event study examines the impact of an event on the shareholder returns of a sample of firms affected by that event; in the case of layoffs, the “event” is the announcement of a layoff by a firm. Since 1990, a number of researchers have utilized event study methods to examine the impact of LAs in the The current issue and full text archive of this journal is available at www.emeraldinsight.com/0143-7720.htm An earlier version of this paper written by Abraham and Dong-One Kim, Korea University, was presented in the 49th Annual Meeting of the Industrial Relations Research Association, New Orleans, January 4-6, 1997. The author thanks Dean Crawford, Thomas Lechner and Paula Voos for their input. Special thanks are given to Dong-One Kim, who assisted with earlier versions of this paper. This research was funded by the Center for Future Human Resource Studies in Seoul, Korea, the State University of New York at Oswego and the University of Northern Iowa. IJM 27,5 452 Received 5 December 2004 Revised 9 August 2005 Accepted 5 December 2005 International Journal of Manpower Vol. 27 No. 5, 2006 pp. 452-466 q Emerald Group Publishing Limited 0143-7720 DOI 10.1108/01437720610683958