Downsizing, Truth-Telling and Mimicking Behaviour

This paper addresses an ethical question: when there is little to lose, do corporate managers misrepresent the facts? The situation that we examine where truth-telling has minimal consequences is a firm's reason for eliminating employees. The consequence for misrepresenting the true reason is damage to the firm's reputation, but this impairment may be inconsequential. In general, our evidence is consistent with many firms telling the truth. However, for some firms, we find that managers apparently tell the truth, but perhaps not the whole truth. And for other companies, the evidence suggests 'mimicking' behavior. Some firms may try to mimic other firms - the ones in better financial condition - by giving the same reason for downsizing. In this sense these firms may be misrepresenting the truth