Oil Price Volatility and Corporate Decisions: Evidence from the GCC Region

Abstract

ABSTRACTIn this study, I examine the impact of oil price volatility on corporate decisions, namely corporate investments and dividend policy. Using a sample of 356 firms from The Gulf Cooperation Council markets spanning from 2005 to 2015, I show that corporate investments and the likelihood of paying dividends is largely influenced by oil price volatility. The evidence suggests that firms tend to invest less and are more likely to choose not to pay dividends during periods of high oil price volatility. Furthermore, I find that the impact of oil price volatility on corporate decisions tends to be stronger in financially constrained firms, using firm size as a proxy. The findings of this study are robust to controlling for macroeconomic volatility and using alternative measures of oil price volatility and alternative econometric approaches.