Is downsizing a good strategy during the downturn? Evidence from Taiwanese manufacturing firms

Eric S. Lin, Chia Ling Lin, Hui Lin Lin, Yi Chi Hsiao

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

In response to a crisis, while retrenchments are considered to be an important part of a firm's long-term recovery, research has indicated that downsizing strategies, reducing employment and shrinking the R&D budget, may lead to an erosion of a firm's valuable core competence. Drawing from the literature of organizational turnaround strategies, this study advances the downsizing research by explaining how downsizing strategies affect a firm's long-term performance. Using a uniquely compiled dataset of 2559 Taiwanese manufacturing firms, our research shows that increasing labor employment during a financial crisis can significantly improve a firm's long-term total factor productivity and sales. In other words, employment downsizing may not be the best solution when encountering an economic downturn.

Original languageEnglish
Article number101171
JournalJapan and the World Economy
Volume65
DOIs
StatePublished - Mar 2023

Keywords

  • Downsizing strategy
  • Employment
  • Financial crisis
  • R&D

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