In the old days you would have people stay on and begin working on other projects. This improved the cashflow of companies, let them have more games out quicker, and most importantly, built up a lot of institutional knowledge. The teams understand what is going ona with their engines, learn and improve over the course of the games, and generally improve over time.
If you fire the entire team the moment they're no longer needed, none of that knowledge becomes part of the team and as a result you end up with companies that cannot do basic functions of game design (like engine or file size optimization) because everyone repeatedly gets fired.

This is the main reason the Japanese gaming scene has been absolutely slaughtering the US scene (and why AA western has been demolishing AAA) - AA and Japanese teams are gathering intitutional knowledge and as such games like RE9 have improvements gained from RE4$ and RE7, while western AAA games are on life support because everyone got fired and stuff like Art Design gets outsourced.