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The ups and downs of oil prices: asymmetric impacts of oil price volatility on corporate environmental responsibility

Author

Listed:
  • Mona Yaghoubi
  • Reza Yaghoubi

Abstract

Purpose - This study aims to show the difference between the two types of oil price volatility resulting from either increases or decreases in oil prices and find evidence of the differential effect of oil price volatility on firms' environmental initiatives. Design/methodology/approach - This paper examines how volatility in crude oil prices affect corporate environmental responsibility among US firms (excluding oil and gas producers) between 2002 and 2020, with a particular focus on the differential impact of oil price volatility. Findings - The authors find that a one standard deviation increase in oil volatility resulting from positive changes in oil prices corresponds to a 12.7% decrease in environmental score, while the same increase in volatility from negative changes in oil prices leads to a 5.5% decrease in environmental score. Financial constraints are identified as a potential channel through which oil price volatility influences environmental activities. Specifically, a one standard deviation increase in oil volatility from positive price changes leads to an 18% decrease in environmental score for firms with high financial constraints, compared to an 8% decrease for firms with low financial constraints. Originality/value - This study builds on the research of Phanet al.(2021) and Maghyereh and Abdoh (2020). Panet al.reveal a negative association between oil price uncertainty and corporate social responsibility in the oil and gas sector, yet they overlook 1) the asymmetric impacts of oil price changes and sectoral disparities. Moreover, 2) their inclusion of a year-fixed effect undermines their findings’ reliability, as the oil price volatility variable remains constant across all firm-year observations, and including a year-fixed effect diminishes its explanatory power.

Suggested Citation

  • Mona Yaghoubi & Reza Yaghoubi, 2024. "The ups and downs of oil prices: asymmetric impacts of oil price volatility on corporate environmental responsibility," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 42(1), pages 173-197, August.
  • Handle: RePEc:eme:sefpps:sef-02-2024-0093
    DOI: 10.1108/SEF-02-2024-0093
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    More about this item

    Keywords

    Crude oil price uncertainty; Asymmetric effect; Corporate environmental responsibility; Financial constraints; G31; G32; Q41; Q56;
    All these keywords.

    JEL classification:

    • 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
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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