TY - JOUR
T1 - Asymmetric effects of oil price uncertainty on corporate investment
AU - Maghyereh, Aktham
AU - Abdoh, Hussein
N1 - Funding Information:
This work was supported by research start-up funding at the United Arab Emirates University [Grant No. G00002652 ].
Funding Information:
This work was supported by research start-up funding at the United Arab Emirates University [Grant No. G00002652].
Funding Information:
Following the literature (see Henriques and Sadorsky, 2011 ; Duchin et al., 2010 ; Eisdorfer et al., 2013 ; González, 2016 ; Wang et al., 2017 ; Andreou et al., 2017 ; Phan et al., 2019 ), we control for leverage, cash flow, growth opportunities, profitability, asset tangibility, and size to account for firm-related heterogeneity that has been found to affect firm's investment expenditures. Specifically, Leverage ( Lev t ) is computed as total debt (including loans, securities, and other current liabilities) scaled by total assets and used to account for potential investment distortions and impediments to financing. Cash flow ( CF t ) is computed as earnings after interest and taxes plus depreciation and amortization scaled by total assets and used as a proxy for financial slack that could allow for more investments. Tobin's Q is used as a proxy for a firm's investment growth opportunities. It is calculated as the ratio of the market value of equity plus preferred stock plus total debt to total assets. Profitability ( Prof t ) is calculated as the ratio of earnings before interest, taxes, depreciation, and amortizations to total assets. Profitable firms could have larger internal sources of financing and hence the ability to carry out more investments. We use the percentage of property, plants, and equipment to total assets as a proxy for asset tangibility ( Tang t ). Tangible assets (as proxied by asset tangibility) support more borrowing, which allows for further investment ( Almeida and Campello, 2007 ). Since there is general agreement that firm size is related to the access to external capital markets that determine the availability of external funds and thus investments, we include firm size ( S ize t ) as a control variable measured as the natural logarithm of total assets. To control for financial market uncertainty, we include the annualized standard deviation of daily value-weighted stock market index returns from the Center for Research in Securities Prices (CRSP). We also include the real GDP growth to control for US economic conditions that may affect corporate investment (see Julio and Yook, 2012 ; Gulen and Ion, 2015 ; Phan et al., 2019 ). Following Yoon and Ratti (2011) , Henriques and Sadorsky (2011) , and Wang et al. (2017) , we control for the effect of (log) oil price level ( LOP t ). We list the detailed variable definitions in Table 1 . 4
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2020/2
Y1 - 2020/2
N2 - Using a comprehensive data set of a large panel of US firms over 1984–2017, we show that the negative effect of crude oil price return uncertainty on investments is asymmetric. In particular, we show that investment is more significantly reduced following the volatility of positive oil price changes than that of negative changes, and this asymmetric effect is more pronounced in small firms. In addition, we find that the asymmetric effect is stronger in the crude oil- and gas-producing companies where the effect of the volatility of negative oil price changes is greater than that of positive oil price changes. We also find that the impact of positive or negative oil price change uncertainty on investments substantially differs across different industries. The results are quite robust to the way in which we measure the investment and oil price uncertainty and to alternative regression methods.
AB - Using a comprehensive data set of a large panel of US firms over 1984–2017, we show that the negative effect of crude oil price return uncertainty on investments is asymmetric. In particular, we show that investment is more significantly reduced following the volatility of positive oil price changes than that of negative changes, and this asymmetric effect is more pronounced in small firms. In addition, we find that the asymmetric effect is stronger in the crude oil- and gas-producing companies where the effect of the volatility of negative oil price changes is greater than that of positive oil price changes. We also find that the impact of positive or negative oil price change uncertainty on investments substantially differs across different industries. The results are quite robust to the way in which we measure the investment and oil price uncertainty and to alternative regression methods.
KW - Asymmetric effects
KW - Corporate investment
KW - Crude oil Price uncertainty
KW - Firm characteristics
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U2 - 10.1016/j.eneco.2019.104622
DO - 10.1016/j.eneco.2019.104622
M3 - Article
AN - SCOPUS:85077778703
VL - 86
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
M1 - 104622
ER -