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The nonlinear impact of oil price uncertainty on firm innovation: Evidence from China’s listed firms

Author

Listed:
  • Guo, Feng
  • Wu, Yinhang

Abstract

This paper studies how oil price uncertainty (OPU) shapes firm innovation. Using a comprehensive firm-year panel of China’s A-share listed firms, we document a robust U-shaped OPU–innovation nexus: innovation contracts as OPU rises from low to moderate levels, but rebounds once uncertainty reaches a high threshold. Although a parsimonious linear model reproduces the negative mean effect documented in the literature, it masks a regime switch from precautionary retrenchment to innovate-to-adapt behavior. Guided by an internal–external mechanism framework, we show that financing constraints at firm-level and product-market competition of the industry strengthen the U-shape, whereas firms’ risk-taking capacity and government subsidies attenuate it. In addition, the U-shaped effect is heterogeneous: it is more pronounced among non-SOEs, in more market-oriented regions, and within energy-intensive and traditional sectors. Overall, the paper connects a pervasive market risk to firm innovation and clarifies when OPU deters versus spurs innovative activities.

Suggested Citation

  • Guo, Feng & Wu, Yinhang, 2026. "The nonlinear impact of oil price uncertainty on firm innovation: Evidence from China’s listed firms," Pacific-Basin Finance Journal, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:pacfin:v:97:y:2026:i:c:s0927538x26000223
    DOI: 10.1016/j.pacfin.2026.103076
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    Keywords

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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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