Antecedents and Consequences of Employee and Asset Restructuring

We examine two forms of employment and asset restructuring: downsizing and upsizing. Guided by institutional theory, we focus on two important questions: (a) are the antecedents of restructuring common across downsizing and upsizing? and (b) are the performance consequences of such restructuring related to prior firm performance? To answer these questions, we use primary data from companies listed on the New York Stock Exchange over a 37-year period (1980–2016). Our results suggest that six key antecedents play a prominent role in both downsizing and upsizing, although they differ in magnitude and direction in how they affect each form of restructuring. However, in both instances they reflect efficiency considerations (company performance and managerial foresight), as well as institutional forces (the economy, political uncertainty, industry, and technology), just as neo-institutional theory suggests. In addition, prior performance plays a central role in restructuring decisions, in both the upsizing and downsizing of assets and employees. The evidence suggests that it is not just current-year performance but also the trend in company performance over the prior two years that forecasts subsequent firm performance; thus, our findings extend and refine institutional theory.