Question

In recent years, it has been common for companies to experience significant stock price changes in reaction to announcements of massive layoffs. Critics charge that such events encourage companies to fire longtime employees and that Wall Street is cheering them on.

Do you agree or disagree? Explain.

Answer 1

It is a common practice to layoff in order to reduce costs and shareholders cheers them on because they interpret that the company is focused in cost cutting and it will eventually increase the overall profits of company and it will boost the overall performance of the company.

I agree with the charge of the critics that wall street often cheer such massive layoff and they interpret massive cost cutting and reduction of cost which were not yielding them enough return. They don't interpret it into terms of human capital reduction so it can be said they are highly focused in the monetary aspects as it will significantly boost the overall profits and significantly increase the return on investment.

Such practices are not completely wrong . Cost cutting should be cheered but employee turnover should always be kept Lower. These measures can have short term beneficial implications but in the long run, it isn't good as it will not only draw criticism from advocators of corporate social responsibility and fair corporate governance. It can also seen as a sign that company is highly profit oriented rather than focusing towards overall development and real maximization of shareholders wealth.