A Study of Business Downsizing Strategies

Downsizing is a broad term typically referring to reductions in a firm’s financial, physical,organizational, or human resources. In the narrow sense, downsizing is viewed as employeedownsizing, which is the planned policies and practices of workforce reductions with the goalof improving firm performance. In the literature, researchers have tended to focus on plannedemployee downsizing and ignored other accompanying downsizing strategies. Overlookingthe accompanying strategies may lead to contradictory findings concerning the outcome of表CM02 共 2 頁 第 2 頁downsizing. Whether and how employee downsizing improves or deteriorates firmperformance depends on the extent to which physical assets are restructured. In the first-yearstudy of this research project, I will examine the effects of employee downsizing on firmperformance by distinguishing the effects between pure employee reduction andsimultaneous cutbacks in employment and assets. Employee reductions associated withdifferent levels of asset contraction constitute diverse downsizing strategies. A model ofendogenous regressors in panel data will be used to address endogeneity of strategy choice.The second-year study will focus on the firms having simultaneous reductions in employeeand physical assets and review the content of their downsizing activities. The downsizingactivities will be classified into three categories: retrenchment, downscaling, anddownscoping. Based on the literature of barriers to exit, the study is aimed to examine howfirm and industry factors influence the choice of downsizing strategies.