Financial performance outcomes of downsizing

The objective of this dissertation is to explore how and when firms engage in downsizing with one central theme: how downsizing affects the financial performance of the firm. In response to recent calls, this dissertation investigates strategic actions such as acquisitions and digital transformation, where downsizing is used applied to unlock benefits. This dissertation examines the timing and magnitude of downsizing decisions and how firms can offset negative workforce effects, thereby securing financial performance. Chapter 2 examines incumbents acquiring born‑digital firms for their digital transformation. This chapter argues that downsizing after a digital acquisition signals efficiency. The findings show that early downsizing after a digital acquisition triggers negative market reactions, while a longer interval signals successful integration and improves market response. The findings emphasizes the importance of careful implementation and employee downsizing to maximize the benefits of digital acquisitions. Chapter 3 analyzes downsizing after a digital‑technology investment. The results show that larger magnitudes of downsizing and short time spans between investment in digitalization and downsizing unlock most value. These insights contribute to the understanding of employee downsizing as digital transformation makes the firm more efficient and yields smaller, flatter structures. Chapter 4 reviews human‑capital deterioration and the need for acquisitions to replenish talent. Post‑acquisition downsizing after an acquisition can unlock synergies but may erode the replenishment potential of the acquired workforce. The findings show that only targeted redundancy in smaller acquired workforces streamlines operations. This chapter provides a nuanced understanding of when and how downsizing can enhance post-acquisition performance, emphasizing resource efficiency and integration to drive long-term success. Chapter 5 studies how firms repair psychological‑contract breaches caused by downsizing. This chapter sheds light on the violating effect of downsizing, which harms employee engagement and motivation, which in turn hurts financial performance. The results show that minor and major cuts outperform moderate ones as efficiency gains in moderate cuts fail to offset contract‑violation costs. Proactive contract repair during moderate downsizing reduces backlash and boosts performance. This chapter provides insights into how organizations can effectively recover from psychological contract violation. In closing, the findings presented in this dissertation suggest that a misjudgment of the magnitude of downsizing, wrong timing, or not taking the impact on employees into consideration can potentially lead to diminished financial performance. However, the insights gained from the various studies in this dissertation above all reinforce the awareness that downsizing under the right circumstances, strategically aligned with firm objectives, and especially with considerations for employees, both victims and survivors, can reap financial benefits.