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Unveiling the enigma: Exploring how uncertain crude oil prices shape investment expenditure and efficiency in Chinese enterprises

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  • Shang, Yuping
  • Ma, Xiaowei
  • Bhatia, Meena
  • Alofaysan, Hind
  • Walsh, Steven T.

Abstract

As a crucial energy resource, crude oil plays a vital role in propelling global economic progress. China's energy consumption is extensive due to its position as the second-largest global economy and leading importer of crude oil. A stable crude oil supply can support China's steady economic growth. The China Crude Oil Futures (INE) launch in 2018 has enriched the WTI and Brent crude oil market systems, further consolidating the critical position of crude oil in China's economic and financial development. Therefore, this paper first examines the impact of crude oil price uncertainty on the investment activities of Chinese micro-enterprises by selecting three crude oil futures: WTI, Brent, and INE. Based on the quarterly (half-year) report of Shanghai and Shenzhen A-share listed enterprises from 2008 to 2023, this study examines the effects of uncertainty in crude oil prices on investment spending and efficiency inside enterprises and the underlying mechanisms that drive these effects. This study provides evidence that the fluctuation in crude oil prices has a detrimental impact on investment expenditure, while concurrently improving the investment efficiency of enterprises. The mechanism test also demonstrates that the volatility of crude oil prices has the potential to diminish investment expenditure and enhance the investment efficiency of enterprises. On the macro level, it mainly depends on reducing the macroeconomic boom index, enterprise boom index, and entrepreneur confidence index. At the micro level, it relies on increasing enterprise cash flow, lowering enterprise investment expectations and consumer product demand. Further heterogeneous analysis indicates that during significant events such as the global COVID-19 pandemic and the Russia-Ukraine conflict, there is a substantial increase in crude oil price uncertainty, leading to reduced enterprise investment expenditure and improved enterprise investment efficiency. Furthermore, the volatility associated with the increase in oil prices has a more pronounced effect on investment outlays and operational effectiveness. Moreover, the volatility of crude oil prices significantly influences the investment expenditure and investment efficiency of enterprises in the secondary industry and non-state-owned sectors. This empirical study examined the causal relationship between crude oil price, investment spending, and investment efficiency. The results of this investigation enhance the current scholarly knowledge on the relationship between crude oil prices and investment, so contributing to the advancement and refinement of this particular field of inquiry. This paper makes a valuable exploration and attempt to explain the mechanism of the impact of crude oil price on the investment activities of micro-enterprises.

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  • Shang, Yuping & Ma, Xiaowei & Bhatia, Meena & Alofaysan, Hind & Walsh, Steven T., 2024. "Unveiling the enigma: Exploring how uncertain crude oil prices shape investment expenditure and efficiency in Chinese enterprises," Energy Economics, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:eneeco:v:132:y:2024:i:c:s0140988324001312
    DOI: 10.1016/j.eneco.2024.107423
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