Does oil price uncertainty affect corporate leverage? Evidence from China

Abstract

In view of the dramatic fluctuation of international oil price over the past decade, oil price uncertainty has aroused widespread concern of academia and policymakers. This paper firstly studies how oil price uncertainty affects corporate leverage, using the financial statement data of Chinese listed companies from 2007 to 2019. The results show that the relationship between oil price uncertainty and corporate leverage is nonlinear, and displays a U shape. Short-term debt financing is more strongly affected. Further analysis indicates that oil price uncertainty could reduce corporate leverage through increasing trade credit and heightening financial distress risk. In addition, this paper finds that the adverse effects of oil price uncertainty on state-owned enterprises or enterprises located in a region of high marketization are more pronounced. Finally, the findings demonstrate that with the advance of refined oil pricing market-oriented reform, the impact of oil price uncertainty on corporate leverage has been enhanced.