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1 – 10 of over 1000Hussein Abdoh and Aktham Maghyereh
The purpose of this study is to examine the effect of product market competition on the oil uncertainty–investment relation.
Abstract
Purpose
The purpose of this study is to examine the effect of product market competition on the oil uncertainty–investment relation.
Design/methodology/approach
The authors use firm-level financial data from the COMPUSTAT database, competition proxies from Hoberg and Phillips (2016) and macroeconomic data on crude oil price uncertainty. Corporate investment is measured as capital expenditure scaled by total assets or as the annual change in (net) total fixed assets plus depreciation. Since our panel data covers a short period (22 years) and the regressions include a combination of a lagged dependent variable and firm fixed effects, the authors apply Blundell and Bond’s (1998) GMM system when regressing corporate investment on the interaction between oil uncertainty and competition.
Findings
Consistent with the theories in the irreversible investment literature, the authors first show that investments are negatively related to oil uncertainty. Second, they show that firms in competitive industries decrease their investments in response to heightened uncertainty by a higher degree than firms in concentrated industries, suggesting that competition can exacerbate negative investment outcomes when success is uncertain. The authors also examine how competition relates to investment asymmetric reactions to positive and negative oil price return volatilities and find a stronger negative relationships between competition and investment-positive oil price volatility, indicating that increasing the probability of a negative outcome due to uncertainty leads firms to reduce investment to a larger extent.
Practical implications
The findings provide useful insights to guide corporate investment decisions under oil price change uncertainty. In particular, if firms can wait for the resolution of uncertainty before deciding to pursue irreversible investment in a competitive market, they can avoid potentially large losses by foregoing investment when the outcomes are unfavorable. This is because competition brings a greater uncertainty to firm performance if the investment outcome is poor, as firms in competitive industries share a large proportion of industry-wide profits with rivals and, thus, competition could erode profit margins and increases the likelihood of being driven out of the market. Hence, firms in competitive markets should balance between strategic preemptive motives and waiting for the resolution of uncertainty before deciding to pursue investment.
Originality/value
This study is the first to examine the effect of competition on the relationship between investment and oil price uncertainty. Moreover, it is the first to examine the effect of competition on the asymmetric response of investment to oil price uncertainty emanating from positive and negative changes in oil price.
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Guenichi Hassen and Khalfaoui Hamdi
This paper examines the effect of oil price uncertainty on corporate social responsibility (CSR) for 507 US firms over the period 1985–2019.
Abstract
Purpose
This paper examines the effect of oil price uncertainty on corporate social responsibility (CSR) for 507 US firms over the period 1985–2019.
Design/methodology/approach
To investigate the nexus between oil price uncertainty and CSR, we have proceeded with a fixed-effects panel regression model over the period 1985–2019.
Findings
Using a dataset of 507 US firms, different specifications of CSR and two alternatives measures of oil price uncertainty, we show that oil price uncertainty negatively influences the CSR in the global US panel and firm's characterized panel. This negative effect is dependent on firms' size, firm's age and value of book share of firms.
Research limitations/implications
US firms are exposed to more risk when carrying high levels of debt, resulting in reduced spending to improve social and environmental conditions. While the negative effect of oil price uncertainty on CSR is exacerbated in economic crisis periods.
Practical implications
US firms are influenced by energy price volatility especially by oil price fluctuations which are the main factor of American economic growth. The rise of oil price uncertainty reduces sustainable corporate development and investment in the green economy.
Social implications
Rethinking renewable energies as an alternative solution in order to guarantee the performance and sustainability of social, environmental and cultural activities.
Originality/value
Young and small firms, lower-share outstanding firms and high book value per share firms are the most negatively affected by oil price uncertainty and therefore their social responsibilities are reduced. However, by introducing interaction variables in the main model, we find that the most indebted firms on one hand and big firms and high-number shares outstanding firms, on the other hand, are the most influenced by oil price uncertainty which consequently limits their social and environmental responsibility.
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Muhammad Tariq Khan, Abdul Rashid, Mushtaq Hussain Khan, Asif Zaman and Shahid Ali
This paper aims to examine the effects of oil price uncertainty on corporate investment of Islamic stocks during the COVID-19 pandemic.
Abstract
Purpose
This paper aims to examine the effects of oil price uncertainty on corporate investment of Islamic stocks during the COVID-19 pandemic.
Design/methodology/approach
The study uses a panel data set that covers 398 listed Islamic stocks from seven major Asia Pacific countries over the period of five years from 2017 to 2021, yielding 1,990 observations. Specifically, this paper investigates the said association by combining the real options theory regarding investment and the panel data-based econometric method that captures the dynamic relationship, the generalized method of moments estimators.
Findings
The findings show that the relationship between the oil price volatility and corporate investment of Islamic stocks is significant and nonlinear in nature, suggesting the presence of both the growth options and the waiting options. Overall, the results reveal that corporate investment of Islamic stocks is hindered during the unprecedented corona crash, when oil price increases at exponential rates.
Practical implications
The findings suggest that considering the information caused by unprecedented events like the COVID-19 pandemic is crucial for investment decisions of Islamic stocks. Therefore, policymakers and regulators should incorporate the impact of oil price uncertainties caused by unprecedented events like the COVID-19 pandemic on firm’s investment expansion and diversification strategies.
Originality/value
To the best of the authors’ knowledge, this paper is the first to examine the relationship between the investment of Islamic stocks and the oil price uncertainty under compound options theory in top Asian oil-importing countries.
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This 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.
Abstract
Purpose
This 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/approach
Our 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.
Findings
We 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/value
Our 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.
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Dejan Živkov and Jasmina Đurašković
This paper aims to investigate how oil price uncertainty affects real gross domestic product (GDP) and industrial production in eight Central and Eastern European countries (CEEC).
Abstract
Purpose
This paper aims to investigate how oil price uncertainty affects real gross domestic product (GDP) and industrial production in eight Central and Eastern European countries (CEEC).
Design/methodology/approach
In the research process, the authors use the Bayesian method of inference for the two applied methodologies – Markov switching generalized autoregressive conditional heteroscedasticity (GARCH) model and quantile regression.
Findings
The results clearly indicate that oil price uncertainty has a low effect on output in moderate market conditions in the selected countries. On the other hand, in the phases of contraction and expansion, which are portrayed by the tail quantiles, the authors find negative and positive Bayesian quantile parameters, which are relatively high in magnitude. This implies that in periods of deep economic crises, an increase in the oil price uncertainty reduces output, amplifying in this way recession pressures in the economy. Contrary, when the economy is in expansion, oil price uncertainty has no influence on the output. The probable reason lies in the fact that the negative effect of oil volatility is not strong enough in the expansion phase to overpower all other positive developments which characterize a growing economy. Also, evidence suggests that increased oil uncertainty has a more negative effect on industrial production than on real GDP, whereas industrial share in GDP plays an important role in how strong some CEECs are impacted by oil uncertainty.
Originality/value
This paper is the first one that investigates the spillover effect from oil uncertainty to output in CEEC.
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Efe Caglar Cagli, Dilvin Taşkin and Pınar Evrim Mandaci
This paper aims to investigate the relationship between sustainable investments and a series of uncertainties from January 2014 to December 2021, including many economic and…
Abstract
Purpose
This paper aims to investigate the relationship between sustainable investments and a series of uncertainties from January 2014 to December 2021, including many economic and political turbulences and the COVID-19 pandemic.
Design/methodology/approach
The authors use Rényi’s transfer entropy method, a nonparametric flexible tool that considers both the center distribution and lower quantiles, capturing extreme rare events that give additional insights to analysis.
Findings
The authors’ results indicate significant bidirectional information transmissions between the crude oil volatility and sustainability indices. The authors report information flows between the cryptocurrency uncertainty and sustainability indices considering tail events. The results are essential for market participants making decisions during turbulent times.
Originality/value
This paper is carried out for a variety of uncertainty measures and environmental, social and governance (ESG) portfolios of both developed and developing markets. It adds to literature in terms of methodology used. Rényi’s transfer entropy methodology is first used to measure the relationship between uncertainties and ESG investments.
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Abdullah Bugshan, Sally Alnahdi, Husam Ananzeh and Faisal Alnori
Since it is believed that economic growth in oil-rich countries is highly influenced by oil price movements, this study aims to explore the relationship between oil price…
Abstract
Purpose
Since it is believed that economic growth in oil-rich countries is highly influenced by oil price movements, this study aims to explore the relationship between oil price volatility (uncertainty) and earnings-management decisions.
Design/methodology/approach
Financial data from oil-exporting countries were used to explore the relationship between oil price volatility and earnings-management decisions. The study used univariate and multivariate analysis. The modified Jones model is the proxy accrual earnings management. Further, the standard deviation of daily oil price returns is used to proxy annualised oil price volatility.
Findings
The results show that there is an association between oil price volatility and accrual earnings management. Specifically, there is a positive and significant relationship between negative accruals and oil price volatility, indicating that firms are inclined to conduct income-decreasing earnings management in periods of high oil price volatility.
Research limitations/implications
This study’s findings have important implications for regulators and investors because they indicate that the uncertainty of oil price volatility has an influence on earnings quality in oil-dependent economies. This is especially important considering the ongoing debate on transparency issues.
Originality/value
To the best of the authors’ knowledge, this study is the first to investigate the relationship between oil prices volatility and earning management behaviour for non-financial firms. Further, the study uses unique data of oil-dependent economies.
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Hela Mzoughi, Yosra Ghabri and Khaled Guesmi
This paper aims to empirically investigate the extent to which interdependence in markets may be driven by COVID-19 effects.
Abstract
Purpose
This paper aims to empirically investigate the extent to which interdependence in markets may be driven by COVID-19 effects.
Design/methodology/approach
The current global COVID-19 pandemic is adversely affecting the oil market (West Texas Intermediate) and crypto-assets markets.
Findings
The authors find that the dependence structure changes significantly after the global pandemic, providing valuable information on how the COVID-19 crisis affects interdependencies. The results also prove that the performance of digital gold seems to be better compared to stablecoin.
Originality/value
The authors fit copulas to pairs of before and after returns, analyze the observed changes in the dependence structure and discuss asymmetries on propagation of crisis. The authors also use the findings to construct portfolios possessing desirable expected behavior.
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Abdullah Bugshan, Walid Bakry and Yongqing Li
This study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price…
Abstract
Purpose
This study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price volatility affects Shariah-compliant firms differently from their non-Shariah-compliant counterparts.
Design/methodology/approach
The study sample includes all non-financial firms listed on Gulf Cooperation Council stock exchanges from 2005 to 2019. In evaluating the oil price volatility–profitability relationship, static (panel fixed effects) and dynamic (system generalised method of moments) models were used.
Findings
Oil price volatility significantly depresses firm profitability. In addition, Shariah-compliant firms are more significantly affected by oil price volatility than their non-Shariah-compliant peers. The results suggest that high oil price volatility exposes Shariah-compliant firms to higher bankruptcy risk than non-Shariah-compliant firms and that positive and negative oil price shocks have asymmetric effects on firm performance.
Research limitations/implications
The findings of the paper call for more economic diversification by supporting non-oil sectors in the region and raise the need for more development of Islam-compliant products that compete with traditional instruments to help Shariah-compliant firms cope with uncertainty. Moreover, managers need to prepare quick alert and response procedures to reduce the negative impacts of oil price volatility on profitability.
Originality/value
To the best of the authors’ knowledge, this study is the first to explore the relationship between oil price volatility and profitability of non-financial firms. Further, the study extends prior Islamic corporate finance literature by enhancing the understanding of how Islamic corporate decisions affect firm performance during instability.
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This study examines the relationship between oil price uncertainty (OPU) and corporate inventory investments using a sample of 6,072 USA manufacturing firms from 1992 to 2019.
Abstract
Purpose
This study examines the relationship between oil price uncertainty (OPU) and corporate inventory investments using a sample of 6,072 USA manufacturing firms from 1992 to 2019.
Design/methodology/approach
The author's study employs a panel dataset to examine the relationship between OPU and corporate inventory investments. The author uses several alternative specifications such as fixed effects models, an instrumental variable analysis, an impact threshold for confounding variable (ITCV) analysis, alternative measures, additional control variables and the percent bias analysis to account for endogeneity issues.
Findings
Corporate inventory investments decrease in response to high OPU. This decrease in inventory investments happens regardless of firms' expected stockout costs, information environment and reliance on external financing. As a potential mechanism, an uncertainty-induced increase in cash holdings contributes to this reduction in inventory investments. Also, the effect of OPU is non-linear and asymmetric. In response to the volatility of positive (negative) oil price changes, inventory investments decrease (increase) up to a certain point and increase (decrease) after that. Further, uncertainty-induced adjustments in inventory investments positively influence the operating performance of firms.
Originality/value
The author's study adds to the growing literature that examines the impact of OPU on corporate outcomes. Inventory investments directly affect business operations and could better reflect firms' responses to an uncertain environment.
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