eThesis - Kauppakorkeakoulun sähköiset gradut

OBJECTIVES OF THE STUDY Layoffs have been widely discussed in the existing literature of economics and several firm- and industry-level characteristics have been found to affect the likelihood of firms to engage in them. Despite the recent wave of finance studies analyzing the impact of CEO characteristics on firm decision-making, there seem to be less literature related to the CEOs making the decisions to lay off employees. The objective of this paper is thus to find out whether managerial characteristics, and especially the field and level of CEO education, have an impact on the likelihood of the firm to engage in layoffs, when it experiences a significant drop in performance.

DATA AND METHODOLOGY The sample consists of 284 firms that experience a significant drop in their performance during a distress year between 2007 and 2013. The sample also includes 121 layoff announcements made by those firms. The data related to CEO education as well as to layoff announcements is hand-collected. As the main method of this paper I use a logistic regression model, where dependent variable takes value 1 if the firm announces at least one layoff during the observation time. In analysis, I also control for year and industry fixed effects. In addition, I analyze whether the behavior of CEOs is different at the beginning of tenure than later on.

FINDINGS The results indicate that CEO education has some impact on layoffs. CEOs having MBA are more likely to engage in layoffs whereas those with technical education are less likely. However, these attributes do not explain layoffs in my sample. Instead, firms having CEOs with economic education in general at undergraduate or graduate level, are found to be significantly more likely to engage in layoffs than those firms where CEOs do not have economic education. According to the expectations, the results also show that odds of layoffs are higher when the CEO has graduate degree compared to those without. The likelihood of layoffs seems to be at highest when the CEO has only Master's level degree: they are 42.6% more likely to lay off employees than firms with CEOs having either Ph.D. or undergraduate level of education. Further, results indicate that poor performance explains more of layoffs made by CEOs with shorter tenure whereas leverage explains more of those made by CEOs with longer tenure. Overall, large firm size seems to be the most consistent determinant explaining the likelihood of layoffs.