The effect of oil price uncertainty on corporate investment in the presence of growth options: Evidence from listed companies in China (1998–2019)

• Published in: The North American journal of economics and finance 2022-11, Vol.62, p.101779, Article 101779
• Main Authors: Chen, Lingtao, Yuan, Yongna, Zhao, Na
• Format: Article
• Language: English
• Subjects: Corporate Investment; Growth Options; Irreversibility; Oil Price Uncertainty
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/j.najef.2022.101779

•We examine the impact of oil price uncertainty on corporate investment in China and identify the underlying mechanisms.•Oil price uncertainty has a nonlinear effect on corporate investment.•The irreversibility and growth opportunities of investment decisions have a moderating impact on the nonlinear effect.•Different firm size or corporate ownership has different responses to the nonlinear effect of oil price uncertainty. We empirically investigate the effect of oil price uncertainty on corporate investment in the presence of growth options using the financial data of listed firms in China from 1998 to 2019. We reveal three key findings in this paper. First, we find that oil price uncertainty has a U-shaped nonlinear effect on corporate investment. In periods of low uncertainty, oil price uncertainty negatively influences corporate investment. However, in periods of high uncertainty, oil price uncertainty positively influences corporate investment. Second, research has found that the U-shaped nonlinear effect is moderated by the irreversibility and growth opportunities of investment decisions. Third, further analyses reveal that this U-shaped nonlinear effect can be changed by a firm’s characteristics. Specifically, this nonlinear effect can only be observed in non-state-owned enterprises and small firms. We test the robustness of our findings and propose several policy suggestions.