Institutional determinants of downsizing Articles uri icon

publication date

  • January 2014

start page

  • 111

end page

  • 128

issue

  • 1

volume

  • 24

international standard serial number (ISSN)

  • 0954-5395

electronic international standard serial number (EISSN)

  • 1748-8583

abstract

  • This study analyses the institutional determinants of downsizing in an economy with a highly rigid labour market: Spain. Our focus is first placed on the impact that the system of severance payment has on downsizing adoption. In particular, we analyse whether the regulatory environment can explain variations in employers' downsizing use. In addition, we analyse how organisations imitate one another in implementing downsizing, presumably in a quest for legitimacy. The evidence provided indicates that low levels of severance payments incurred by downsizers in the past promotes downsizing in the present, but too high severance payments discourages downsizing. Therefore, firms in Spain are constrained by regulatory forces stemming from labour law. Our results also reflect the importance of rational myths in downsizing because companies imitate the decisions on downsizing widely used in their industry and, particularly, those adopted by industry leaders. © 2013 John Wiley & Sons Ltd.