The Impact of Downsizing on Corporate Reputation
| DOI | http://doi.org/10.1111/j.1467-8551.2005.00460.x |
| Author | Stelios C. Zyglidopoulos |
| Date | 01 September 2005 |
| Published date | 01 September 2005 |
RESEARCH NOTE
The Impact of Downsizing on Corporate
Reputation
Stelios C. Zyglidopoulos
The Judge Institute of Management, University of Cambridge, Trumpington Street, Cambridge, CB2 1AG, UK
E-mail: szyglidopoulos@yahoo.com
This study investigates the impact that downsizing has on corporate reputation.
Drawing on the relevant literatures, two hypotheses are developed and tested. The
findings of the study are as follows. First, downsizing has a negative impact on
corporate reputation. Second downsizing is more damaging to corporate reputation
than ‘downscoping’–the sale of a division.
Downsizing, despite its increasing acceptance by
corporations, has remained a controversial topic.
Empirical evidence fail to support the notion that
downsizing leads to superior financial perfor-
mance in the long run (Baily, Bartelsman and
Haltiwanger, 1994; Cascio, Young, and Morris,
1997; De Meuse, Bergmann and Vaderheiden,
1997). Some academics insist that downsizing, if
done strategically, can benefit the firm (Burton,
Keels and Shook, 1996), while others claim that
downsizing as a strategy for improvement is ‘by
and large, a failure’ (Cameron, 1996). Despite
this lack of consistent evidence, however, man-
agers have continued its practice (McKinley,
Mone and Barker, 1998).
Within this context, the downsizing literature
has investigated numerous issues, but has paid
little attention to the impact of downsizing on
corporate reputation. This paper, using data
from Fortune’s ‘America’s Most Admired Cor-
porations (AMAC) survey, addresses this issue
by investigating how downsizing impacts corpo-
rate reputation, which is important for two rea-
sons. First, a better understanding of the effect of
downsizing on corporate reputation assists in the
management of one of the most strategically
important intangible firm resources, reputation
(Barney, 1991; Dierickx and Cool, 1989; Fom-
brun, 1996; Roberts and Dowling, 1997). Second,
from a downsizing literature perspective, this
study assists in better understanding the con-
troversy surrounding downsizing.
Downsizing and Corporate Reputation
Although the term ‘downsizing’ has often been
used in the literature to encompass a number of
related activities (Cameron, 1996; Cascio, Young
and Morris, 1997), for the purposes of this study
it refers exclusively to employment downsizing.
There are two criteria used in the literature to
classify a personnel reduction as downsizing.
First, the reduction must be significant; Cascio,
Young and Morris (1997) used a 5% reduction as
a cut-off point. Second, this reduction must be
intentional (Cameron, 1996), but given that signi-
ficant workforce reductions are ‘less likely to be
due to attrition’ (Littler and Innes, 2004), it
is sufficient to say that a firm engaging in a
significant workforce reduction is downsizing.
But is an employee reduction resulting from the
sale of a division downsizing? Here, ‘downsizing’
is used exclusively to refer to significant reduc-
tions in personnel as a result of layoffs (Burton,
Keels and Shook, 1996; Worrell, Davidson and
Sharma, 1991), whereas ‘downscoping’, which
has been used to refer to strategic divestiture
British Journal of Management, Vol. 16, 253–259 (2005)
DOI: 10.1111/j.1467-8551.2005.00460.x
r2005 British Academy of Management
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