Unveiling the critical nexus: Volatility of crude oil future prices and trade partner’s cash holding behavior in the face of the Russia–Ukraine conflict

Abstract

This study investigates the spillover effects of the Russia–Ukraine conflict on corporate finance, particularly focusing on cash-holding decisions of Chinese-listed firms from Q1 2020 to Q1 2023. Utilizing a Difference-in-Difference approach, we analyze how firms with trade links to Russia and Ukraine adjust their cash holdings in response to the conflict. A significant aspect of our analysis is the emphasis on Shanghai crude oil futures prices, alongside West Texas Intermediate (WTI) prices, to understand the impact of oil market volatility on these decisions. Our findings reveal that such volatility, especially in Shanghai crude oil futures, significantly influences firms’ cash holdings, with an increased tendency to hoard cash in times of rising uncertainties. This behavior is particularly pronounced in non-state-owned, general trade, and export firms. The study highlights how geopolitical tensions and fluctuating oil prices affect corporate financial strategies, offering insights for policymakers and corporate managers in navigating economic uncertainties.