The Role of Labor Downsizing in Financial Crises A Crisis Management Approach to the Emergency Situations of Companies

Downsizing has recently turned into a management strategy for managers to achieve a so-called desired financial performance.  However, its spiritual and material negative effects have been ignored and only the costs savings in salaries and wages have been taken into account. While reduction of human resources leads to social anomalies and, putting aside the negative effects on the morale of the remaining employees, brings financial turmoil to the company. Meanwhile, financial turmoil and distress are factors that lead managers to downsize. This study is aimed at investigating crisis management in the emergency situations of companies to explore the role of labor reduction in corporate financial crises. The statistical population of the study includes all companies listed on Tehran Stock Exchange during 2008-2017. The sample size contains 175 companies based on the removal sampling method. Due to the imaginary nature of the dependent variable, the research follows a logistic regression model. The results indicated that downsizing of the workforce results in financial crises for companies in future.