Seminar (Dept. of Finance)

Theme：Stock Market and Demand for Labor Skill

Speaker：Yao Lu, Professor of Finance, Tsinghua SEM

Time：2022-04-01 10:00

Address：Online Meeting

Language：Chinese/English

ABSTRACT:

Stock price movements, even when driven by non-fundamental factors, can have pronounced effects on firms’ investment decisions. We use detailed job posting data to examine changes in demand for skills around the 2015 A-share stock market crash in China, which was caused by deleveraging fire sales from speculative investors. Firms affected by these adverse shocks shift skill composition downward and replace high-skilled workers with low-skilled workers. The effect is stronger for financially constrained firms. The downward shift in skill composition coincides with an increase in wage premium demanded by high-skilled workers. The increase in skill premium is more substantial in locations that labor supply is lower and high-skilled workers have more bargaining power. Firms that are more adversely affected by the stock market crash also cut their technology investments and have worse performance in productivity and sales growth. Our results are robust when we adopt a fuzzy regression discontinuity design (RDD) in an instrumental variable approach to address the potential endogeneity concern. Our findings suggest that the stock market has real impacts on firm decisions and is far from a sideshow.