The oil price plummeted in 2014–2015: Is there an effect on Chinese firms' labour investment?

Xinheng Liu, Shuxian Li, Chengbo Fu, Xu Gong and Chen Fan

International Journal of Finance & Economics, 2024, vol. 29, issue 1, 943-960

Abstract: Using the exogenous event of oil price sharp decline in 2014–2015, this paper employs the difference‐in‐difference method to establish a causal link between the oil price decline and the Chinese firms' labour investment. Data of listed companies in China from 2012 to 2016 are used to explore this relationship. We show that the employment for firms in industries with significant negative oil price risk exposure increases 16.4% after the oil price plummeted, that is, the oil price decline significantly promotes the firms' labour force. Additionally, the positive effect of oil price decline on the firms' labour force is more pronounced in firms with higher risk‐taking, financing constraints, and industry competition. Lastly, we also document that the effect of oil price decline is through sales growth channels to increase labour demand. However, firms tend to overinvest in labour after the oil price plummeted. Based on these findings we suggest that oil price fluctuation should be an important factor for the Chinese government and enterprises when they make an economic decision related to the labour force.

Date: 2024
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