Saturday, May 8, 2010

"You can't shrink your way into prosperity"

This is interesting:
New research from the Univ. of Colorado, Denver shows major job cuts don't guarantee prosperity down the line but, in fact, lead to lower profits and stock returns.

"Those who cut deepest, relative to industry peers, delivered smaller profits and weaker stock returns for as long as nine years after a recession," the WSJ reports, citing a study by Univ. of Colorado business professor Wayne Cascio. He studied how companies in the Standard & Poor's 500-stock index have performed during and after recessions over an 18 year period.


Turns out firms that cut aggressively aren't prepared to ramp up quickly once the recovery begins. In contrast, peer firms that cautiously trimmed are well-staffed to take advantage of a swift shift in momentum. "You can't shrink your way into prosperity," says Cascio in the article.

Assuming the research holds up, isn't this the exact sort of thing an efficient market should catch?

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