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Does oil price uncertainty matter in firm innovation? Evidence from China

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  • Yang, Baochen
  • Song, Xinyu

Abstract

Inspired by the prevalence of firm innovation and substantial influence of international oil price uncertainty (OPU) on firm operation and decision-making, we investigate the influence of OPU on firm innovation. Using a sample of Chinese listed firms over the 2007–2019 period, our study reveals that OPU decreases firm innovation. This finding is consistent with the real options theory and the prospect theory. Mediation analysis shows that OPU could decrease firm innovation by increasing firms' financing constraints degree. Moreover, high-tech firms and those in highly competitive industries have fewer options to delay their innovation investments, we find that the adverse effects of OPU on their innovation are weaker. Finally, further analysis shows that government subsidies can help mitigate adverse effects of OPU on firm innovation. This paper reveals that OPU goes beyond the commonly known and understood regular indicator that shapes a firm's innovation activity and enriches firm-level evidence for the effects of OPU by highlighting the effects on long-term investment in intangible assets.

Suggested Citation

  • Yang, Baochen & Song, Xinyu, 2023. "Does oil price uncertainty matter in firm innovation? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finana:v:88:y:2023:i:c:s105752192300203x
    DOI: 10.1016/j.irfa.2023.102687
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    Keywords

    Oil price uncertainty; Firm innovation; Real options theory; Prospect theory;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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