Major Layoffs’ impact on venture capital activity : a study on how Ericsson and Nokia’s layoffs affected the Nordic venture capital activity

Abstract

This paper investigates the relationship between company-related shocks and the Nordic private equity and venture capital industry. We investigate the consequences from Ericsson and Nokia’s major layoffs in 2002 and 2012 and present some extraordinary and very interesting results. Several different analyses have been conducted, both at an aggregated level and at deeper levels. This includes a thorough investigation of the amounts invested and number of companies invested in after the shocks. We use Sweden, Finland, Denmark and Norway as the targeted countries of interest, giving the analysis credibility in respect of a shock’s impact in the Nordics. Among other findings, we present results that indicate that the number of companies invested in, in the hightech sector, increased in both Sweden and Finland, compared to Denmark after such a shock. They also suggest that the increase in the number of companies invested in was larger in the high-tech sector compared to other sectors. This also indicates that a major layoff in a specific industry will boost the start-up activity within the same industry. In addition, there appears to be an unchanged risk aversion among investors, as the invested amount appearsto be unaffected after a major layoff. These results can give an interpretation that the number of companies invested in could increase in Norway after the nation’s current difficulties. With the results presented, we expect that the number of companies invested in, in energy-related industries, will be greater in Norway compared to other Nordic countries.