How Clearer Financial Comparisons Help Firms Stabilize Their Workforce
Firms whose financial results are easier to compare to peers are less likely to lay off workers in downturns and less likely to overhire in upturns.
UIC Business Professor Irene Zhong Publishes Research in FT50 Journal
In a global economy shaped by demand shocks, firms often adjust their workforce up or down in response to changing conditions—cutting jobs in downturns and expanding in stronger periods. New research from UIC Business faculty member Rong Irene Zhong shows that firms whose financial results are easier to compare with peers take a more measured approach.
Drawing on data from more than 26,000 firms across 44 countries, the study finds that clearer financial comparisons strengthen the relationship between employers and employees. As a result, firms are less likely to lay off workers during downturns and less likely to overexpand during upturns, leading to more stable employment over time. The findings are detailed in the study “Financial statement comparability and employment stability around the world,” published in the Journal of International Business Studies.
Why Financial Comparisons Matter
When employees can compare their firm’s performance to that of similar companies, they gain important context for evaluating decisions about layoffs, wages, and hiring.
Without that context, it can be difficult to determine whether workforce reductions or compensation changes reflect broader economic conditions or firm-specific choices. When financial results are easier to compare across firms, those decisions become more transparent and easier to evaluate.
This added transparency strengthens credibility. Employees are more likely to view workforce decisions as reasonable when they can benchmark them against what similar firms are experiencing, supporting more stable working relationships over time.
Fewer Layoffs, Less Overhiring
The study, which examines firms across 44 countries, finds that clearer financial comparisons are associated with more balanced adjustments to employment over the business cycle.
Firms with more comparable financial reporting:
- Lay off fewer workers during negative demand shocks
- Avoid aggressive hiring during positive shocks
- Adjust employment more gradually over time
Together, these patterns reflect a more balanced approach to hiring and layoff decisions, making more gradual adjustments rather than responding directly to short-term changes in business conditions.
When financial performance is easier to compare across firms, employees are better able to understand—and trust—decisions about hiring, wages, and layoffs.
The research also finds that employees respond differently in these environments. Workers at firms with more comparable financials are more willing to accept modest wage reductions during difficult periods, without a decline in productivity.
These effects are strongest in settings where peer comparisons are especially meaningful, including competitive industries, more transparent reporting environments, and countries with stronger social safety nets.
Implications for Business Leaders
The findings point to an often-overlooked factor in workforce stability: how financial performance is presented and understood.
When financial results are easier to compare across firms, employees have a clearer sense of whether workforce decisions reflect broader economic conditions. Greater clarity can strengthen credibility and build employee trust, making workers more willing to accept decisions that may affect them in the short term and enabling firms to make more consistent hiring and layoff decisions over time.
Importantly, these more stable patterns do not appear to come at the expense of performance. Instead, clearer financial comparisons can support more disciplined decision-making and help firms navigate economic fluctuations with greater consistency.
About the Journal
The study appears in the Journal of International Business Studies, a leading international business journal and part of the Financial Times (FT) 50 list. The journal has a five-year impact factor of 13.1 and an ABDC rating of A*, the highest designation.
The open-access version of the article is available here.