Newswise — Twitter began laying off many of its 7,500 employees today (Nov. 4), days after Elon Musk completed a $44 billion buyout of the social media giant. Musk also said on Twitter that revenue has slumped due to pressure placed on advertisers by interest groups. How might investors react?

New research by Vivek Astvansh, assistant professor of marketing at the Indiana University Kelley School of Business, has studied stock investors’ reactions to 30,905 layoff announcements by U.S. public companies. It’s his prediction that investors may not penalize the company.

Astvansh found that investors penalize the company announcing layoffs only if the announcement indicates reactive -- as opposed to proactive -- management. Reactive layoffs are those characterized by a decline in demand, financial distress, or low earnings. In contrast, proactive layoffs are driven by cost-cutting, consolidation of operations, boosting efficiency, or restructuring/ reorganization.

His research -- now under formal review at a major management journal -- thus predicts that Twitter investors may not penalize the company. But Astvansh adds, “Twitter is an outlier, more so with Musk. Therefore, I will not be surprised if Twitter investors react differently.”