Oil Price Shocks, Firm Uncertainty and Investment

Lee, Kiseok and Kang, Wensheng and Ratti, Ronald A. (2010): Oil Price Shocks, Firm Uncertainty and Investment.

Abstract

It is found that an oil price shock in interaction with a firm’s stock price volatility has a ‎negative effect on investment by that firm, both in the short and long-term. In the presence of ‎this interaction term, linear variables in oil price shocks are not statistically significant. There is ‎evidence that for the short-term effects of the interaction variable, the particular magnitude of an ‎oil price shock may not be as important as the fact that there is an oil price shock. For the long-‎term effects, however, the magnitude of the oil price shock does matter. Over a longer horizon, ‎oil price shocks depress investment more at firms facing greater uncertainty. An increase in firm ‎stock price volatility continues to reduce the link between sales growth and investment in the ‎presence of oil price shocks as in Bloom et al. (2007).‎

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil price shocks, firm uncertainty, stock price volatility, investment
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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