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Journal of Business Ethics

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21-04-2023 | Original Paper

Layoffs in SMEs: The Role of Social Proximity

Author: Vivien Lefebvre

Published in: Journal of Business Ethics | Issue 4/2024

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Abstract

Abundant research exists on the restructuring operations of large, publicly listed firms. However, little is known about the antecedents of layoffs in small and medium-sized enterprises (SMEs). Building on the stakeholder salience theory and arguments on social proximity, this study posits that SMEs are less likely to dismiss employees than large firms. We argue that the existence of strong interpersonal ties between employees and managers makes it hard for SME owners and managers to dismiss employees. Empirically analyzing a large sample of European Union firms, the results confirm that the likelihood of layoffs is lower in SMEs than in large firms, even when performance declines.

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Varum and Rocha (2013), one of the few studies on SMEs, observed that Portuguese SMEs are less likely to dismiss employees than large firms during a downturn.

The economic importance of SMEs in terms of job creation has been highlighted by the 2008 financial crisis and the economic consequences of the Covid-19 crisis. This may explain why past research has relatively overlooked SMEs in the study of layoffs.

We believe that a medium-sized firm with 250 employees has more in common with a large firm of 300 employees than with a micro firm of 10 employees. The theoretical arguments we build in this section likely apply to all SMEs, although they are likely stronger for the smallest of firms. We distinguish between micro, small, medium, and large firms when presenting the results of our empirical analysis.

We thank an anonymous reviewer for highlighting this point.

The index can be accessed at https://stats.oecd.org/Index.aspx?DataSetCode=EPL_OV

We use alternatively instrumental variables probit regressions. The instruments used are the mean proportion of SMEs in a region (using two-digit NUTS codes) and in an industry (using two-digit NACE codes). The results, unreported for brevity, are similar.

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Title: Layoffs in SMEs: The Role of Social Proximity
Author: Vivien Lefebvre
Publication date: 21-04-2023
Publisher: Springer Netherlands
Published in: Journal of Business Ethics / Issue 4/2024
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-023-05414-z

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