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Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market

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  • Gan, Tian
  • Jiang, Yan
  • Wu, Xi
  • Zhang, Mingxin

Abstract

This paper explores the impact of oil price uncertainty affects the cost of debt in China. By analyzing the bond data from 2008 to 2019 in China, we find that oil price fluctuation boost bond offering spread, denoting that oil price uncertainty may increase the cost of debt. This increase is likely due to higher default risks resulting from the heightened oil price uncertainty. Moreover, non-state-owned firms and those in the energy industry are more susceptible to the effects of oil price volatility. Our findings also reveal an asymmetric effect of oil price uncertainty on the cost of debt, with a stronger impact observed from positive uncertainty compared to negative uncertainty. This study contributes to the current understanding of the ways in which oil price uncertainty impacts the cost of debt in an emerging country.

Suggested Citation

  • Gan, Tian & Jiang, Yan & Wu, Xi & Zhang, Mingxin, 2023. "Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market," Journal of Asian Economics, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:asieco:v:87:y:2023:i:c:s104900782300057x
    DOI: 10.1016/j.asieco.2023.101637
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    More about this item

    Keywords

    Oil price uncertainty; Bond offering spread; Default risk; Bond market; The cost of debt;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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