JM Insights in the Classroom
Teaching Insights:
The size of a firm’s sales force downsizing refers to the extent of planned reductions to a firm’s sales force. Salespeople are consistently one of the top positions laid off each quarter. It is a signal of market risk information that influences investors’ uncertainty regarding a firm’s future performance (i.e., idiosyncratic risk). Sales force downsizing decisions matter to Wall Street. Sales force management decisions driven by cost management concerns actually have unintended consequences that will offset any potential cost efficiency gains.
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Marketing Related Courses:
Marketing Strategy; Salesforce Management
Full Citation:
Panagopoulos, Nikolaos G., Ryan Mullins, and Panagiotis Avramidis (2018),
“Sales Force Downsizing and Firm-Idiosyncratic Risk: The Contingent Role of Investors’ Screening and Firm’s Signaling Processes,” Journal of Marketing, 82 (6), 71-88.
Article Abstract:
Although sales force downsizing represents a challenging marketing resource change that can signal uncertainty about future firm performance, little is known about its impact on financial-market performance. Drawing from information economics, the authors address this knowledge gap by developing a comprehensive framework to (1) examine the impact of the size of a firm’s sales force downsizing on firm-idiosyncratic risk, (2) uncover investors’ screening processes that influence this relationship, and (3) identify firms’ mitigating signaling processes that can alleviate investor uncertainty linked to downsizing. The authors draw from several secondary sources to assemble a longitudinal data set of 314 U.S. public firms over 12 years and model their framework using a robust econometric approach. Findings show that larger sales force reductions are associated with greater firm-idiosyncratic risk. Furthermore, this increase in risk is amplified when firms face high levels of future competitive threats and lack transparency in financial reporting. However, chief executive officers can mitigate these deleterious moderating effects by signaling a commitment to growth (i.e., increasing advertising expenditures) and formally communicating an external strategic focus to Wall Street.
Special thanks to Kelley Gullo, Ph.D. candidates at Duke University, for their support in working with authors on submissions to this program.
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Nikolaos G. Panagopoulos is Associate Professor of Marketing and Director of Executive Education & International Sales at Ralph and Luci Schey Sales Centre; Ohio University; College of Business; Department of Marketing.
Ryan Mullins is Associate Professor of Marketing; Clemson University; College of Business; Department of Marketing.
Panagiotis Avramidis is Assistant Professor of Finance; ALBA Graduate Business School.