Strategic deviations and firm employment decisions – empirical evidence from China

Purpose Whether firms should pursue strategies that deviate from industry norms has received considerable scholarly attention. Design/methodology/approach Using a sample of Chinese listed non-financial firms over the period 2007–2023, this study examines the impact of strategic deviation on firms’ employment decisions. Findings We find that a higher degree of strategic deviation is associated with a significant reduction in firm employment size. Mechanism analysis indicates that strategic deviation adversely affects employment through two channels: reducing access to long-term credit and strengthening liquidity-oriented defensive behavior. Further analysis reveals that low-educated workers experience more pronounced negative effects, whereas the employment of highly educated workers remains largely unaffected. This pattern suggests that firms enhance their human capital composition, exhibiting a dual tendency of workforce downsizing and quality upgrading. Originality/value This study is among the first to investigate the labor market consequences of strategic deviation, thereby extending the literature on strategic deviation and identifying an additional potential source of unemployment.