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This new rule could reveal the huge gap between CEO pay and worker pay

Discussion in 'Sports and News' started by YankeeFan, Aug 5, 2015.

Page 5 of 10
  1. 93Devil

    93Devil Well-Known Member


    It sure as fuck will help it make its future earning estimates, which will then help increase stock prices in the future.

    Let's say a company projects a $1.2 mil quarterly profit, but it only makes $1.1 mil. Investors will then start selling the stock because the company looks weak. They lay off $200,000 worth of employees, or cut salaries to do so, because they know the next quarter might slip again. Another card is all the CEOs hold a shit ton of stock in the company, so if it drops a buck, that could cost them $100,000.

    So a company that is turning $4.0 million dollars a year in profit is laying off employees. Thank you stock market.
     
    93Devil, Aug 5, 2015
    #49
  2. JohnHammond

    JohnHammond Well-Known Member

    It's been a few decades since I've been college. It's good to get a Business 101 lecture here as I regret not taking it back in the day.
     
    JohnHammond, Aug 5, 2015
    #50
  3. 93Devil

    93Devil Well-Known Member

    That was more for the people who don't think companies fire people to keep stock prices high.
     
    93Devil, Aug 5, 2015
    #51
  4. doctorquant

    doctorquant Well-Known Member

    And top shelf, too. Just think how rinky-dink it would have been if not delivered by a top-flight educator!
     
    doctorquant, Aug 5, 2015
    #52
    YankeeFan likes this.
  5. The Big Ragu

    The Big Ragu Moderator Staff Member

    The world works nothing like that. First, most companies guide low on their earnings projections. Analysts want to give their investors accurate projections. If companies can trick those analysts into underestimating earnings, and the analysts can't independently come up with more accurate projections than the company's guidance, the companies can beat estimates. And that is what stock prices react to -- beats.

    The way to juice a stock price is not to gut your company, the way you suggested. Gutting a company doesn't inspire investment. It raises all kinds of questions about why you are struggling. Previously healthy companies that announce layoffs get scrutinized to explain the REASONS they are laying off workers. Those companies usually have struggling stock prices. If you are a shit company and you want to help your stock price, what you usually do (the last 5 years) is rely on the current manipulated interest rate markets, borrow near zero and you announce a round of stock buybacks or that you are raising your dividend. Or you borrow money and merge with someone else -- in which case yes, there are often layoffs (in the name of "synergy"), but not in the simplistic A = B way you suggested. Stock buybacks, dividends and M&A have been the script over the last several years with the Federal Reserve rigging the rate markets. And that is really all that has been driving the stock market, given that actual GAAP earnings have been shit.

    Companies don't lay off people to juice their stock price. Gutting your company is not going to inspire investment from anyone.

    The only time firing people helps a stock price (the one exception I can think of) is if it is a severely beaten up company, either near bankrupt or whose business is slowly failing. But those are companies that have already seen their stock prices collapse, and by the time someone is gutting the company to try to find cost savings and selling a turnaround story, it's usually a lost cause anyhow. Those are special situations, not the reality for most companies.
     
    The Big Ragu, Aug 5, 2015
    #53
    SBR likes this.
  6. Ace

    Ace Well-Known Member

    Since I was talking newspaper companies, I am still claiming accuracy in my facts and rants!
     
    Ace, Aug 5, 2015
    #54
    doctorquant likes this.
  7. JayFarrar

    JayFarrar Well-Known Member

    Hmm, I saw a post on Romenesko recently where an analyst was discussing McLatchy and was wondering why the company hadn't ditched high priced help to go with freelancers.

    Thought that the workforce reduction would help the stock prices.

    I also believe it was the New Yorker's economics guy who did a piece on how CEOs manipulate the market through layoffs to get a short-term boost to the stock price as that means quick and easy money in their pockets.

    Or the deeply reported VQR piece that showed moves to boost the stock actually cut profits because of higher cost logistics and such.

    But that's all a bunch of nonsense.
     
    JayFarrar, Aug 5, 2015
    #55
    Ace likes this.
  8. Jake_Taylor

    Jake_Taylor Well-Known Member

    I should've gone to CEO school.
     
    Jake_Taylor, Aug 5, 2015
    #56
  9. doctorquant

    doctorquant Well-Known Member

    "... layoff announcements of U.S. firms are associated with a negative 1.78 percent abnormal return ..."

    Lee, P.M., 1997. A comparative analysis of layoff announcements and stock price reactions in the United States and Japan. Strategic Management Journal, 18(11), 879-894.
     
    doctorquant, Aug 5, 2015
    #57
  10. JayFarrar

    JayFarrar Well-Known Member

    Hooray, an economics paper from 1997 back when the market was trading 10,000 points lower and might as well be written about dinosaurs as the game and its rules have changed.
     
    JayFarrar, Aug 5, 2015
    #58
  11. cranberry

    cranberry Well-Known Member

    Wall St. seems to react extremely favorably to the kind of layoffs made in what it deems efforts by financially sound/growing companies to become more efficient. It seems to be a trendy CEO move these days. But I imagine a huge percentage of layoffs, including the biggest and bluntest, take place at distressed or failing companies. Depends on the circumstance.
     
    Last edited: Aug 5, 2015
    cranberry, Aug 5, 2015
    #59
  12. doctorquant

    doctorquant Well-Known Member

    LOL ... I'm sure, since you're so certain that the "rules have changed," that you'll be able to: 1) explain how these rules changes have made this work no longer valid; and B) point us all to more contemporary scholarly works that are more relevant to this "new" environment.

    We'll wait.
     
    doctorquant, Aug 5, 2015
    #60
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