Received:
2024-11-11 | Accepted:
2025-03-07 | Published:
2025-03-30
Title
The impact of oil price volatility on financial performance of Saudi firms
Abstract
The research examines the effects of oil price volatility on the financial performance of oil corporations and focuses on financial metrics: Return on Assets (ROA), Net Profit Margin (NPM), and Gross Profit Margin (GPM). This work employs a panel data regression analysis from 2016 to 2023 to examine the effect of oil price fluctuations on these indicators during the pre-pandemic, pandemic, and post-pandemic phases. The research furthermore examines the impact of fluctuations in oil prices on firms within the oil and various non-oil industries. The initial research indicates a positive correlation between the increases in oil prices and the enhancements in ROA, NPM, and GPM. The declines in oil prices are inversely correlated with these numbers, especially in the short term. The pandemic period exposed peculiarities due to fluctuations in oil demand and prices, which impacted the overall financial status of enterprises throughout their respective sectors and demonstrated the efficacy of risk management methods. Firms in the oil sector demonstrated greater fluctuations in performance compared to those in other industries, attributable to changes in oil prices. The document identifies risk management issues, emphasizes optimal hedging and cost control practices, and highlights the significance of adapting to environmental and geopolitical changes for enterprises. These insights are beneficial for corporations and policymakers, as they emphasize the necessity of implementing sound financial management techniques to plan for swings in oil prices and broader economic shocks.
Keywords
financial performance, oil price, pandemic impact, volatility
JEL classifications
F65
, G20
, M41
URI
http://jssidoi.org/jesi/article/1296
DOI
Pages
326-340
Funding
This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License
References
Alaali, F. (2020). The effect of oil and stock price volatility on firm-level investment: The case of UK firms. Energy Economics, 87, 104731. https://doi.org/10.1016/j.eneco.2020.104731
Search via ReFindit
Ali, A., & Shaik, A. R. (2022). Effect of debt financing on firm performance: A study on the energy sector of Saudi Arabia. International Journal of Energy Economics and Policy, 12(6), 10-15. https://doi.org/10.32479/ijeep.13677
Search via ReFindit
Alley, I., Asekomeh, A., Mobolaji, H., & Adeniran, Y. A. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19). https://doi.org/10.19044/esj.2014.v10n19p%2525p
Search via ReFindit
Almasria, N. A., Aldboush, H. H., Al-Kasasbeh, O., Lutfi, A., Alhajahmad, F. B., Al Barrak, T., & Alsheikh, G. (2024). Oil Price Volatility and Economic Growth: Evidence from the Middle East. International Journal of Energy Economics and Policy, 14(3), 417-421. https://doi.org/10.32479/ijeep.15484
Search via ReFindit
Baltagi, B. H., & Baltagi, B. H. (2008). Econometric analysis of panel data (Vol. 4, pp. 135-145). In Econometric analysis of panel data (4th ed., pp. 135-145). Wiley. ISBN: 978-0470518861.
Search via ReFindit
Chen, Y., He, K., & Tso, G. K. (2017). Forecasting crude oil prices: a deep learning based model. Procedia computer science, 122, 300-307. https://doi.org/10.1016/j.procs.2017.11.373
Search via ReFindit
Elneel, F. A., & AlMulhim, A. F. (2022). The effect of oil price shocks on Saudi Arabia's economic growth in the light of Vision 2030: A combination of VECM and ARDL models. Journal of the Knowledge Economy, 13(4), 3401-3423. https://doi.org/10.1007/s13132-021-00841-7
Search via ReFindit
Filis, G. (2010). Macroeconomy, stock market, and oil prices: do meaningful relationships exist among their cyclical fluctuations? Energy Economics, 32(4), 877-886. https://doi.org/10.1016/j.eneco.2010.03.010
Search via ReFindit
Ghalayini, L. (2011). The interaction between oil price and economic growth. Middle Eastern Finance and Economics, 13(21), 127-141. Available at https://www.researchgate.net/publication/235939209_The_Interaction_between_Oil_Price_and_Economic_Growth
Search via ReFindit
Gharib, C., Mefteh-Wali, S., & Jabeur, S. B. (2021). The bubble contagion effect of COVID-19 outbreak: Evidence from crude oil and gold markets. Finance Research Letters, 38, 101703. https://doi.org/10.1016/j.frl.2020.101703
Search via ReFindit
Guo, C., Zhang, X., & Iqbal, S. (2024). Does oil price volatility and financial expenditures of the oil industry influence energy generation intensity? Implications for clean energy acquisition. Journal of Cleaner Production, 434, 139907. https://doi.org/10.1016/j.jclepro.2023.139907
Search via ReFindit
Hamilton, J. D. (2009). Understanding crude oil prices. The Energy Journal, 30(2), 179-206. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol30-No2-9
Search via ReFindit
Jawadi, F., & Ftiti, Z. (2019). Oil price collapse and challenges to economic transformation of Saudi Arabia: A time-series analysis. Energy Economics, 80, 12-19. https://doi.org/10.1016/j.eneco.2018.12.003
Search via ReFindit
Kennedy, P. (2008). A guide to econometrics. John Wiley & Sons. ISBN: 978-0585202037.
Search via ReFindit
Khamis, R., Anasweh, M., & Hamdan, A. M. M. (2018). Oil prices and stock market returns in oil-exporting countries: Evidence from Saudi Arabia. International Journal of Energy Economics and Policy, 8(3), 301-306. https://www.econjournals.com/index.php/ijeep/article/view/6541
Search via ReFindit
Kilian, L., Rebucci, A., & Spatafora, N. (2009). Oil shocks and external balances. Journal of International Economics, 77(2), 181-194. https://doi.org/10.1016/j.jinteco.2009.01.001
Search via ReFindit
Le, T. H., & Chang, Y. (2015). Effects of oil price shocks on the stock market performance: Do the nature of shocks and economies matter? Energy Economics, 51, 261-274. https://doi.org/10.1016/j.eneco.2015.06.019
Search via ReFindit
Ma, R. R., Xiong, T., & Bao, Y. (2021). The Russia-Saudi Arabia oil price war during the COVID-19 pandemic. Energy Economics, 102, 105517. https://doi.org/10.1016/j.eneco.2021.105517
Search via ReFindit
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652. https://doi.org/10.1111/1468-0084.0610s1631
Search via ReFindit
Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil‐exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222-246. https://doi.org/10.1111/opec.12050
Search via ReFindit
Narayan, P. K., & Narayan, S. (2007). Modeling oil price volatility. Energy policy, 35(12), 6549-6553. https://doi.org/10.1016/j.enpol.2007.07.020
Search via ReFindit
O’Brien, R. M. (2007). A caution regarding rules of thumb for variance inflation factors. Quality & quantity, 41, 673-690. https://doi.org/10.1007/s11135-006-9018-6
Search via ReFindit
Papapetrou, E. (2001). Oil price shocks, stock market, economic activity, and employment in Greece. Energy Economics, 23(5), 511-532. 00078-0 https://doi.org/10.1016/S0140-9883(01)
Search via ReFindit
Patel, R., Goodell, J. W., Oriani, M. E., Paltrinieri, A., & Yarovaya, L. (2022). A bibliometric review of financial market integration literature. International Review of Financial Analysis, 80, 102035. https://doi.org/10.1016/j.irfa.2022.102035
Search via ReFindit
Shaeri, K., Adaoglu, C., & Katircioglu, S. T. (2016). Oil price risk exposure: A comparison of financial and non-financial subsectors. Energy, 109, 712-723.2. https://doi.org/10.1016/j.energy.2016.05.028
Search via ReFindit
Sheng, X., Kim, W. J., Gupta, R., & Ji, Q. (2023). The impacts of oil price volatility on financial stress: Is the COVID-19 period different? International Review of Economics & Finance, 85, 520-532. https://doi.org/10.1016/j.iref.2023.02.006
Search via ReFindit
Shu, T., Baslom, M. M. M., & Alsharif, H. Z. H. (2018). Investigating volatility in Saudi Arabia crude oil prices and its impact on the oil stock market. International Journal of Energy Economics and Policy, 8(4), 338-346. https://www.econjournals.com/index.php/ijeep/article/view/6849
Search via ReFindit
Su, C. W., Huang, S. W., Qin, M., & Umar, M. (2021). Does crude oil price stimulate economic policy uncertainty in BRICS? Pacific-Basin Finance Journal, 66, 101519. https://doi.org/10.1016/j.pacfin.2021.101519
Search via ReFindit
Wattanatorn, W., & Kanchanapoom, T. (2012). Oil prices and profitability performance: Sector analysis. Procedia-Social and Behavioral Sciences, 40, 763-767. https://doi.org/10.1016/j.sbspro.2012.03.263
Search via ReFindit
Wooldridge, J. M. (2010). Econometric analysis of cross-section and panel data. MIT Press. https://www.jstor.org/stable/j.ctt5hhcfr
Search via ReFindit
Yarovaya, L., Mirza, N., Abaidi, J., & Hasnaoui, A. (2021). Human capital efficiency and equity funds' performance during the COVID-19 pandemic. International Review of Economics & Finance, 71, 584-591. https://doi.org/10.1016/j.iref.2020.09.017
Search via ReFindit
Yu, Y., Guo, S., & Chang, X. (2022). Oil price volatility and economic performance during COVID-19 and financial crises of 2007–2008. Resources Policy, 75, 102531. https://doi.org/10.1016/j.resourpol.2021.102531
Search via ReFindit
Zainal Abidin, I. S., & Haseeb, M. (2018). Malaysia-GCC bilateral trade, macroeconomic indicators, and Islamic finance linkages: A gravity model approach. Academy of Accounting and Financial Studies Journal, 22(SI), 1-7. https://repo.uum.edu.my/id/eprint/26328
Search via ReFindit
RSS 1.0
