Abstract
The panel vector autoregression model is estimated using three main variables related to with profitability, financial liquidity, and financial leverage for 94 manufacturing companies from 2000 to 2017 in Indonesia. The aim is to examine the impact of oil price shocks on the ROA (profitability), CR (financial liquidity), and DER (financial leverage). The impulse reaction function of samples reveals some remarkable results. First, the response of ROA, DER, and CR appears to be consistent in many ways. Second, either Brent oil or WTI oil gives the same result for these variables. Third, financial liquidity for Indonesia manufacturing companies is not affected by the oil prices. The results obtained are robust following the GMM model in the estimation of the panel VAR.Keywords: Oil price shocks, Panel VAR, Impulse Reaction Function, GMM modelJEL Classifications: L6, Q4DOI: https://doi.org/10.32479/ijeep.9808
Highlights
The manufacturing sector is one of the initiators of economic growth for each country
The sample standard deviations lie in the range of ‒0.57291 and 60.398, indicating the Brent oil is the least volatile variable while debt equity ratio (DER) is the most volatile
The main of this research is to examine the response of profitability, liquidity, and financial leverage to oil price shocks in manufacturing companies in Indonesia Figures 1 and 2 show the impulse reaction function (IRF) obtained from the estimated
Summary
The manufacturing sector is one of the initiators of economic growth for each country. It is surprising that there is still little empiric consensus on the impact of oil price shocks on the financial performance of manufacturing companies in Indonesia as a developing market. We find ample evidence of oil price shocks on the financial performance of manufacturing companies. The current ratio as financial liquidity ratio for manufacturing companies in Indonesia is not affected by the oil prices. We add a literature review by finding the response between oil price shocks and financial performance for manufacturing companies in Indonesia. Et al..: Do Oil Price Shocks Give Impact on Financial Performance of Manufacturing Sectors in Indonesia?.
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