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

Abstract

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.