Oil Shocks and their Impact on Corporate Profitability, Productivity, and Credit Risk: Firm-Level Evidence Over Two Decades

I study the impact of oil price shocks to non-financial firms over two decades using a highly granular firm-level dataset. I show the impact of these price shocks to key financial and operational metrics, including value added, employment, real wages, labor share, profit margins, dividend payments, productivity, and credit risk. I highlight the asymmetric effects of oil price increases and decreases. A one standard deviation increase in the weighted oil price shocks leads to a ‚¬396 decrease in per capita productivity (in 2024 euros), and a 0.30 percentage point increase in the probability of default, while there is no significant effect in the case of oil price decreases, leading to persistent effects of oil price increases in the medium term. I also show heterogeneous effects of oil price increases across firm size and energy intensity. This paper has implications for policymakers, especially those concerned with financial stability (bank stress-testing, climate stress-testing, macro-financial modeling), and competitiveness, and more generally for those studying climate transition risks.