Oil price uncertainty, workplace misconduct, and cash holding

Abstract

Using a novel and comprehensive dataset on penalties imposed by several US federal agencies for workplace law violations, we find that US firms are less likely to violate employee-related laws and receive associated penalties when oil price uncertainty (OPU) increases. This evidence results from two potential channels: precautionary motive and improved board monitoring. First, firms increase discretionary safety expenditure, and second, they increase the board of directors' involvement in the safety and compliance committee. Further, the evidence is not stemmed from other alternatives, such as reduced production or employment. A firm reduces workplace misconduct more when it is financially constrained, incurs a higher cost of goods sold, and belongs to the energy industry. Our results are robust to endogeneity concerns and alternative OPU measurements. Moreover, we document that the positive effect of oil price uncertainty on cash holdings is attenuated if firms reduce workplace violations and associated penalties.