Impact Of Oil Price Uncertainty Research Articles

How do oil price uncertainty and economic policy uncertainty influence achievement of net-zero emissions targets by 2050? A quantile-based analysis

ABSTRACT Governments globally have prioritized carbon neutrality and reduction as a response to the intensifying menace of climate change. These objectives align with the United Nations Sustainable Development Goals (UNSDG-13), stressing the imperative to take decisive action on climate change. Thus, this study aimed to assess the impact of oil price uncertainty, economic policy uncertainty, financial development, and renewable energy on ecological proxies (CO2 emissions, Ecological footprint, and Load capacity factor) using quarterly data spanning from 1990 to 2019. As far as the investigators are aware, this is the first empirical analysis examining the impact of oil price uncertainty on ecological quality. To achieve this, we employed advanced techniques, including quantile-on-quantile KRLS (QQKRLS) and quantile-on-quantile Granger causality (QQGC), to analyse the interconnections among these variables. The findings based on the load capacity factor exposed that renewable energy, economic policy uncertainty, financial development, and economic growth positively contribute to ecological quality, whereas oil price uncertainty has a detrimental effect. Additionally, as a measure of robustness, CO2 emissions and ecological footprint were included in the analysis, demonstrating comparable outcomes when assessed alongside the load capacity factor model. Furthermore, QQGC results demonstrated that all regressors significantly forecast ecological quality. Drawing from the findings, policy interventions ought to prioritize incentivizing the adoption of renewable energy, mitigating economic policy uncertainty, fostering financial development, and stimulating economic growth as pivotal strategies for augmenting ecological quality. Furthermore, integrating measures to alleviate oil price uncertainty stands as a crucial imperative for ensuring environmental sustainability.

Oil price uncertainty and excess value of diversification

PurposeThis study examines the value implications of oil price uncertainty for investors in diversified firms using a sample of 922 USA firms from 2001 to 2019.Design/methodology/approachOur study employs a panel dataset to examine the value implications of oil price uncertainty for diversified firm investors. We consider several alternative specifications to account for unobserved factors and measurement errors that could potentially bias our results. In particular, we use alternative measures of the excess value of diversified firms and oil price uncertainty, additional control variables, fixed-effects models, the Oster test, impact threshold for confounding variable (ITCV) analysis, two-stage least square instrumental variable (2SLS-IV) analysis and the system-GMM model.FindingsWe find that the excess value of diversified firms, relative to a benchmark portfolio of single-segment firms, increases with high oil price uncertainty. The impact of oil price uncertainty is asymmetric, as corporate diversification is value-increasing for diversified firm investors only when the volatility is due to positive oil price changes and amidst supply-driven oil price shocks. The excess value increases irrespective of diversified firms’ financial constraints and oil usage. Diversified firms become conservative in their internal capital allocations with high oil price uncertainty. Such conservatism is value-increasing for diversified firm investors, as it supports higher performance in response to oil price uncertainty.Originality/valueOur study has three important implications: first, they are relevant to investors in understanding the portfolio value implications of oil price uncertainty. Second, they are helpful for firm managers while comprehending the value-relevant implications of internal capital allocations. Finally, our findings are policy relevant in the context of the future of diversified firms in developed markets.

Oil price uncertainty and corporate diversification: Evidence from Chinese manufacturing firms

This study examines the effect of oil price uncertainty on corporate diversification using the Chinese manufacturing listed firms for the period from 2007 to 2019. From the risk hedging perspective, we find that firms are more likely to diversify across industries when oil price uncertainty increases. These findings are robust to utilize alternative measures of key variables, perform an instrumental variable regression, system GMM approach, the change regression, and consider other contemporaneous shocks. Further mediation analyses reveal that the increased diversification mainly results from the heightened operational risk and financing constraints of firms. Finally, we observe that the relation between oil price uncertainty and corporate diversification is more pronounced for firms with higher exposure to oil price and those with higher external profit pressure. Overall, our study sheds new light on the impact of oil price uncertainty on the firm-level activities, and contributes to the debate about the driving factors for the diversification trend in emerging markets.

Oil price uncertainty, oil pricing reform, and corporate profitability: The case of China.

This study investigates the impact of oil price uncertainty (OPU) on corporate profitability in China, the world's largest crude oil consumer. Most importantly, we examine how the Chinese government's oil price reform affects this relationship. Using the yearly data of Chinese-listed companies, we find that the uncertainty of oil prices negatively affects corporate profitability but positively impacts operating expenses from 2007 to 2020. This finding holds after robust tests, including alternative profitability metrics and endogeneity model. Most interestingly, implementing the 2013 market-oriented oil pricing reform amplifies the adverse impact of OPU on corporate profitability owing to increased operating costs in the post-2013 period. Moreover, the detrimental effect of uncertain oil prices on corporate profitability is less prominent for large-capitalized companies. This research adds to the body of knowledge on the factors affecting corporate profitability by highlighting the volatility effect of oil prices and government pricing mechanisms. The results offer grounds for legislators and corporate managers to consider how to control the uncertainty surrounding oil price matters to ensure stable corporate profitability.

Oil price uncertainty and corporate inefficient investment: Evidence from China

Motivated by the substantial influence of oil price uncertainty (OPU) on corporate investment and the importance of corporate investment efficiency, this study focuses on the impact of OPU on corporate inefficient investment. Using a sample of Chinese listed firms from 2007 to 2019, we find that OPU negatively affects inefficient investment. This negative effect is consistent in the over-investment and under-investment sub-sample. Our findings are consistent with the real options theory and the strategic growth option theory. We also find that a shortening debt maturity structure is one of the underlying mechanisms through which OPU reduces inefficient investment. In addition, heterogeneity analysis indicates that the negative effects of OPU on inefficient investment are more pronounced in state-owned firms, firms with higher financing constraints, and firms with lower ownership concentration. Furthermore, we find that OPU emanating from positive oil price changes has a stronger negative impact on inefficient investment. This study comprehensively investigates the relationship between OPU and corporate inefficient investment from perspectives of over-investment and under-investment, and it enriches macro perspective evidence for the determinants of corporate inefficient investment.

Oil Price Uncertainty and IPOs

We examine the impact of oil price uncertainty on IPO volume in the oil and gas sector. By using the implied volatility of oil options, a forward-looking uncertainty measure, we identify the effect of uncertainty on the going-public decision. Oil price uncertainty exhibits a strong negative relation to IPO volume. A one standard deviation decrease in the implied volatility results in a 29% increase in the number of quarterly IPOs. The effect is concentrated among the price-sensitive upstream producers. We further report that uncertainty positively impacts the IPO withdrawal decision and increases the value of postponing the offering.

Re-examining the Impact of Oil Price Uncertainty on Sovereign CDS Spread of GCC Countries: Accounting for the Asymmetry and Outliers

We examine the effect of oil price uncertainty on sovereign credit risks in Gulf Cooperation Council (GCC) countries. Unlike past studies, we employ a structural vector autoregression with multivariate GARCH-in-mean (VAR-GARCH-in-mean) approach after filtering out outliers in the observed series. The findings show that uncertainty in the oil market has a positive impact on the sovereign Credit Default Swap (CDS) spreads of the GCC countries. Furthermore, we find that GCC sovereign CDS spreads react asymmetrically to positive and negative oil price shocks.

The macroeconomic effects of oil price uncertainty

We study the impact of oil price uncertainty (OPU) on macroeconomic activity. We construct a new measure of OPU by extracting information on oil markets from 50 newspapers around the world using textual analysis techniques. Our index spikes around important historical events, such as the oil price shock of the 1970s and the supply glut of the 1980s. The effects of OPU on macroeconomic activity are captured using Bayesian vector autoregressive techniques. OPU is an important source of macroeconomic fluctuations in the US, with industrial production displaying a maximum estimated drop of 0.34% almost 10 months after impact. These negative effects are sharpened when monetary policy is constrained by the Zero-Lower Bound. OPU exerts an economically meaningful impact on global economic conditions and affects economic activity in other industrialized countries.

Oil price uncertainty and audit fees: Evidence from the energy industry

This study examines how oil price uncertainty, measured by implied volatility, affects audit fees. Using samples from the energy industry, we find that oil price uncertainty increases audit fees. Furthermore, the mechanism analyses demonstrate that the increase in audit fees is driven by the increased audit effort rather than a higher audit risk premium. Additionally, the positive impact of oil price uncertainty on audit fees is more pronounced for non-state-owned firms, firms with weaker corporate governance, and firms with greater earnings manipulation risks. Finally, our main finding remains robust for oil price uncertainty measured by Shanghai Crude Oil Futures and West Texas Intermediate.

Oil Price Uncertainty and M&A Activity

This study examines the impact of oil price uncertainty on mergers and acquisition (M&A) activity in the oil and gas sector. Analyzing this industry enables us to construct a natural forward-looking measure of oil price uncertainty, namely the implied crude oil volatility. Using a sample of U.S. firms in the oil and gas sector from 1994–2018 containing 4,323 announced transactions, we document that oil price uncertainty is negatively related to future M&A activity. Uncertainty is mainly a driver of horizontal and vertical M&A activity, where upstream firms are more affected by this uncertainty than downstream firms. Our results lend support to a real options explanation of investment under uncertainty where firms choose to defer investments as a response to increased uncertainty.

Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market

This paper explores the impact of oil price uncertainty affects the cost of debt in China. By analyzing the bond data from 2008 to 2019 in China, we find that oil price fluctuation boost bond offering spread, denoting that oil price uncertainty may increase the cost of debt. This increase is likely due to higher default risks resulting from the heightened oil price uncertainty. Moreover, non-state-owned firms and those in the energy industry are more susceptible to the effects of oil price volatility. Our findings also reveal an asymmetric effect of oil price uncertainty on the cost of debt, with a stronger impact observed from positive uncertainty compared to negative uncertainty. This study contributes to the current understanding of the ways in which oil price uncertainty impacts the cost of debt in an emerging country.

Symmetric and asymmetric GARCH estimations of the impact of oil price uncertainty on output growth: evidence from the G7.

Crude oil is an essential source of energy. Without access to energy, output growth is impossible. As a result of this link, volatility in oil prices has the ability to induce fluctuations in the output of both developed and developing economies. Moreover, factors such as business cycles and policy changes often introduce nonlinearity into the transmission mechanism of oil price shocks. This study therefore examines not only the interconnectedness of oil price volatility and output growth, but also the nonlinear, asymmetric impact of oil price volatility on output growth in the countries making up the Group of Seven. To this end, monthly data on West Texas Intermediate oil price and industrial production indices of the Group of Seven countries over the period 1990:01 to 2019:08 is used for empirical analysis. The study employs the DCC and cDCC-GARCH techniques for symmetric empirical analysis. The asymmetric empirical analysis is also conducted via GJR-GARCH, FIEGARCH, HYGARCH and cDCC-GARCH techniques. The findings reveal disparities in the magnitudes of the positive and negative (asymmetric) effects of oil price shocks on output growth. The results also reveal that past news and lagged volatility have a significant impact on the current conditional volatility of the output growth of the Group of Seven countries. The study concludes that the impact of oil price volatility on output growth in the selected economies is asymmetric, the volatility is highly persistent and clustered, and the asymmetric GARCH models outperform the symmetric GARCH models.

Global oil price uncertainty and excessive corporate debt in China

Oil price uncertainty has widely influenced the economic development of the world. This study explores the influence of oil price uncertainty on the excessive debt behavior of Chinese listed companies during 2010–2019. Our results show that a global oil price uncertainty can significantly reduce excessive corporate debt, and the impact is predominant among small, non-state-owned, non-high-tech, or non-energy firms. Results also show that oil price uncertainty acts from both demand and supply channels. In particular, at the demand level higher product-market demand can weaken the impact of oil price uncertainty, while at the supply level higher financing constraints can enhance the impact of oil price uncertainty. Our findings are robust to a range of tests. Under the construction of the market-oriented system, enterprises should establish differentiated financing decisions for different businesses to deal with oil price fluctuations, and financial institutions also need to pay more attention to the excessive debt phenomenon of different types of corporate under the uncertain oil price.

Oil price uncertainty and enterprise total factor productivity: Evidence from China

Global oil price uncertainty may affect the enterprise total factor productivity (TFP). Considering the unbalanced relationship between the rapid growth in the Chinese economy and its relatively low TFP and China is the largest net oil importer, this paper employs the SYS-GMM to effectively analyze the impact of oil price uncertainty on Chinese enterprise TFP, as well as its mechanism. Based on firm-level data of listed Chinese enterprises from 2010 to 2019, we find significant evidence that oil price shocks have a detrimental influence on enterprise TFP. This influence is mediated by technical innovation and resource allocation. Heterogeneity analysis reveals that oil price uncertainty has a stronger negative impact on enterprise TFP state-owned firms, or firms in small businesses, secondary industries, northeastern heavy industries, low-competition sectors, and regions where marketization is sluggish. Moreover, when the control of retail oil prices is eased, the negative impact becomes more evident. Our findings can provide advice on policies or to researchers regarding the considerable uncertainty of energy prices and increasingly importance of TFP.

Oil price uncertainty and stock price crash risk: Evidence from China

This paper investigates the impact of oil price uncertainty on stock price crash risk in China. The empirical results based on a sample from 2000 to 2019 show that oil price uncertainty positively affects stock price crash risk. In particular, oil price uncertainty has a greater effect on stock price crash risk for the non-state-owned enterprises, although its positive impact is significant both for the state-owned and non-state-owned enterprises. Further analysis finds that the positive impact of oil price uncertainty on stock price crash risk can be suppressed by corporate risk-taking and becomes weaker in a highly competitive market. Our study supports that oil price uncertainty is also an important factor contributing to stock price crash risk and provides more micro-level evidence for the research on the oil-stock relation.

The asymmetric impact of oil price uncertainty on emerging market financial stress: A quantile regression approach

AbstractThis study investigates the effects of the crude oil implied volatility index (OVX) upon emerging market financial stress (EMFS). We resort to a quantile regression framework as this approach is a better alternative to disentangle the relationship under different market conditions. Besides, we also examine how EMFS responds to the lags and asymmetries in the OVX. The empirical results show significantly positive impacts of OVX upon EMFS. Further, the effects of OVX become more assertive in the upper quantiles of EMFS, implying higher sensitivity to OVX when stress levels are high. In terms of the lagged effects, the relationship is transient as the OVX coefficients become weaker with increasing lag sizes. We further find that only positive impulses in OVX can significantly predict EMFS. Lastly, we report evidence that the Credit market stress is a crucial driver of EMFS.

Mechanism analysis of the influence of oil price uncertainty on strategic investment of renewable energy enterprises

AbstractThis paper empirically explores the impact of oil price uncertainty on the strategic investment of China's renewable energy enterprises from the perspective of certain substitution relationships between renewable energy enterprises and traditional energy enterprises by using the systematic GMM method. In addition, we propose three specific influence mechanisms for the renewable energy industry. The results of our mechanism analysis show that the uncertainty of oil price will increase the market's expectation of renewable energy enterprises and thus stimulate their investment. While the uncertainty of oil price will restrain the investment expenditure of renewable energy enterprises through risk transmission. The scale of enterprises will affect the above two influencing mechanisms. However, the uncertainty of oil price can hardly influence the strategic investment decision through the stimulation of the renewable energy industry by the consumer market. Our results are helpful to the strategy makers of renewable energy enterprises and the macro policy‐makers of the government.

Does oil price uncertainty affect corporate leverage? Evidence from China

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.

Economic policy uncertainty, oil price shocks and corporate investment: Evidence from the oil industry

This study investigates the impact of oil price uncertainty (OPU) and economic policy uncertainty (EPU) on corporate investment using a global sample of 4017 firms from the oil sector from 1991 to 2017. After applying GLM regression with firms and years fixed effects and clustering for firms based on robust standard errors, our study found that both OPU and EPU negatively impact corporate investment. More specifically, this negative impact is consistent across different sub-samples. We also discover that the negative effect of OPU and EPU is more pronounced in oil-producing countries than in oil-consuming countries. Our analysis shows that oil-producing countries, market volatility and global financial crises significantly influence the relationship of corporate investment with OPU and EPU. Our findings remain unchanged to different robustness tests such as alternative proxies of investment, OPU, and EPU.

Impact of oil price volatility on state-level consumption of the United States: The role of oil dependence

In this study, we analyse the impact of oil price uncertainty (as measured by an observable measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption by accounting for oil dependency. We account for both the long- and short-run dynamics of the state-level consumption function using the panel Pooled Mean Group estimator. The analysis makes use of a novel dataset including housing and stock market wealth at the state level covering the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018. We simultaneously estimate the long-run relationship and short-run impact of oil price volatility at the state-level conditional upon their oil dependency. We find that the negative impact of volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative impact is least for Illinois, New York and Nebraska. States with lower per capita income and consumption expenditure, notably in the Southeast and Southwest region of the country are exposed to be more vulnerable to the negative impact of adverse developments and uncertainty in the oil market, as they may have less access to a stock of wealth and other means as recourse. Heterogenous responses, therefore, necessitate additional state-level response besides the national response to oil uncertainty.