The effect of downsizing on the firm performance of small- and medium-sized enterprises in the Netherlands

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Purpose: Explore the differential effect of downsizing on firm performance for firms categorized as small- and medium-sized enterprises and firms categorized as large firms in terms of profitability and growth. Design/methodology/approach: Analyzed six-year longitudinal data of 123 downsizing firms in the Netherlands between 2002-2016 and 74 non-downsizing firms between 2003-2011. Using panel data regressions, this thesis examines the relation between downsizing and two measures of firm profitability and two measures of firm growth which are return on assets, return on equity, sales growth, and asset growth, respectively. Findings: No significant findings were found examining the direct effect of downsizing and firm category on firm profitability or growth. Significant were found for the interaction effect between firm category, downsizing frequency (-), downsizing lead time (+) and return on equity. Also, significant were found for the interaction effect between firm category, downsizing timing (-), downsizing frequency (+) and sales growth. As last, significant were found for the association between downsizing scope and asset growth (-) and the interaction between firm category, downsizing scope (+) and asset growth. Research limitations/implications: The direct effect of downsizing on firm profitability and growth are found to be insignificant or equivocal in this research. Evidence suggests that significant differences do exist for small- and medium-sized enterprises compared to large firms when looking at the interaction with downsizing characteristics and firm profitability and growth. However, no clear pattern is found. Therefore, future research should address small- and medium-sized enterprises using larger sample sized and alternative research methodologies to explore possible differences between the examined firm categories. Practical implications: Differences between small- and medium-sized enterprises do exist. Managers of entities should consider the characteristics of their organization and the planned characteristics of the downsizing process to reach an optimal outcome on firm profitability and growth. Originality: Focus on small- and medium-sized enterprises, longitudinal dataset, identifying downsizers using social plans, assessing effects on both firm profitability and growth.
Faculteit der Managementwetenschappen