Unemployment insurance benefits and motives for corporate financial investment: evidence from China

Unemployment insurance benefits can influence corporate investment behavior. We investigate the impact of unemployment insurance benefits on the precautionary and profit-seeking motives underlying corporate financial investment by reference to monthly county-level unemployment insurance benefits data and data obtained from listed firms in China. Our results show that unemployment insurance benefits significantly promote non-state-owned enterprises' (non-SOEs') long-term financial investment, driven by the profit-seeking motive rather than the precautionary motive. A mechanism analysis indicates that unemployment insurance benefits weaken employees' monitoring of non-SOEs. Heterogeneity tests reveal that these effects are more pronounced for labor-intensive non-SOEs and for non-SOEs with a greater share of skilled employees. Moreover, the promotional effect of unemployment insurance benefits on profit-seeking motives can be counteracted by external monitoring mechanisms. Overall, our paper contributes to the literature on labor markets and corporate finance.