We study the reaction of stock prices to announcements of reductions in force
(RIFs) using a sample of nearly 3878 such announcements in 1176 large firms during the
1970-97 period collected from the Wall Street Journal Index. We note that, although
there has been a dramatic secular increase in news stories related to job loss, the total
number of actual announcements for the firms in our sample follows the business cycle
quite closely. We then examine changes over time in standard summary statistics (means,
medians, fraction negative) of the distribution of stock market reactions as well as changes
over time in kernel density estimates of this distribution. We find clear evidence that the
distribution of stock market reactions has shifted to the right (became less negative) over
time. One possible explanation for this change is that, over the last three decades, RIFs
designed to improve efficiency have become more common relative to RIFs designed to
cope with reductions in product demand. We find that, although this explanation shows
some promise, most of the decline in the negative average stock price reaction remains
unexplained.