Oil price volatility and corporate cash holding

Bugshan, Abdullah

doi:10.1016/j.jcomm.2021.100237

Cited by 12 publications

(4 citation statements)

References 51 publications

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“…Thus, the trade-off theory transaction cost-saving and precautionary motives are relatively valuable for Shariah-compliant firms. The findings are in line with Bugshan et al (2021) who indicated that the higher-level uncertainty exposes Shariah-compliant firms to higher bankruptcy risks compared to non-Shariah-compliant firms, mainly due to the restrictions imposed on Shariahcompliant firms. The financial structure of Shariah-compliant firms is less dynamic and flexible, especially in relation to external financing options (Bugshan et al, 2021b).…”

Section: Regression Resultssupporting

confidence: 90%

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Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Alnori

Bugshan

2022

IMEFM

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Purpose This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance. Therefore, the objective of this study is to analyze the significant relationship of liquidity on Shariah- and non-Shariah-compliant corporations. Design/methodology/approach This study sample includes non-financial firms listed in six Gulf Cooperation Council (GCC) markets between 2005 and 2019. The study uses panel fixed effects and the dynamic generalized method of moments (system-GMM) models to test the relationship between cash holding and firm performance. The firms’ performance is measured using four widely used proxies representing book and market measures of performance including return on assets, return on equity, earnings before interest and tax to total assets and Tobin’s Q. Findings The results explore that the nature of the relationship between cash holdings and performance varies across Shariah-compliant and non-Shariah-compliant firms. Specifically, cash holdings are positively and significantly related to Shariah-compliant firms’ performance. However, cash reserves are not significantly related to conventional firms’ performance. These findings indicate that Shariah-compliant firms rely more on their cash holdings to avoid costly and less available external financing, meet everyday business needs and invest in profitable projects. In contrast, the value for cash holding is less important for non-Shariah-compliant firms, as their external financing options are less restricted compared to Shariah-compliant firms. Research limitations/implications This study is not free from limitations. More specifically, the sample of this study comprises of firms listed in GCC countries, which share common features. It would be interesting for future research to examine the linkage between cash holdings and Shariah-compliant and conventional firms’ performance by applying a larger sample, such as firms located in countries of the Organization of Islamic Cooperation. Practical implications The findings of this paper provide useful insights for managers and investors on the important role of cash management for Shariah-compliant firms. Policymakers and bankers need to develop Shariah-based financial products to ease Islamic financing sources. Moreover, the findings of this paper call for more research on the importance of liquidity management for Shariah-compliant firms. Originality/value This study extends the Islamic finance literature by exploring the key role of cash holdings to Shariah-compliant firms. To the best of the authors’ knowledge, this study is the first study to investigate cash holdings and performance between Shariah-compliant and non-Shariah-compliant firms.

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Section: Regression Resultssupporting

confidence: 90%

“…Therefore, to overcome for the endogeneity concern and due to the dynamic nature of firms' performances, we used system generalized method of moments (GMM). This approach is performed in relevant cash holdings studies (Bugshan, 2021).…”

Section: Growthmentioning

confidence: 99%

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Alnori

Bugshan

2022

IMEFM

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“…The two most widely used measures of cash holdings in the available literature are the net cash ratio (Bates et al. , 2009; Bugshan, 2021) and the cash asset ratio (Dittmar et al. , 2003; Harford et al , 2008; Opler et al.…”

Section: Methodsmentioning

confidence: 99%

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

Alnori

Bugshan

Bakry

2021

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PurposeThe purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.Originality/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

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“…This is mainly due to the unpredictability of oil prices, which can have a significant impact on the overall economy. Oil price volatility refers to the extent to which oil prices undergo fluctuations, both upward and downward, over time [20]. This volatility arises when certain error terms are notably more significant than others, and these error terms are responsible for the unique behavior observed in the price time series.…”

Section: Introductionmentioning

confidence: 99%

Exploring the Dynamics of Brent Crude Oil, S&P500 and Bitcoin Prices Amid Economic Instability

Bâra,

Georgescu,

Oprea

et al. 2024

IEEE Access

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In this paper, we mainly investigate three variables from the price volatility point of view: Brent crude oil, S&P500 and Bitcoin (BTCUSD), aiming to underline the impact of price volatility. Brent crude oil accounts for two-thirds of the oil market. Its price volatility has a significant impact on environmental, transportation, mobility, economic and social aspects that affect sustainability. This paper conducts an extensive examination of the forecasting capabilities of various GARCH (Generalized Autoregressive Conditional Heteroskedasticity) models, identifying the most suitable GARCH model for estimating Value at Risk (VaR) for Brent crude oil price. The assessment of VaR for different GARCH models is carried out using Kupiec's Probability of Failure (POF) test and Christoffersen's test. This study leverages Brent crude oil data spanning from 2019 to 2023. Additionally, to prove the robustness of the GARCH models, we further consider the West Texas Intermediate (WTI) and Dubai oil prices that are the dominant in the U.S and Asian market. The investigation identifies the TGARCH(1,1) Skewed Student model as the optimal choice among 9 models considered for VaR estimation. The results show that TGARCH Skewed Student model surpasses the other models in the study, proving its superiority in forecasting Brent crude oil price volatility and facilitating VaR estimation. A VaR of 0.044 with a 95% confidence level means that there is a 95% chance that the portfolio will not lose more than 4.4% of its value. By incorporating skewness in addition to volatility asymmetry, the Skewed GARCH-type models provide a more realistic representation of the underlying return distribution. Furthermore, the most appropriate GARCH-type model for WTI crude oil is EGARCH(1,1) Skewed Student, with a VaR coverage of 0.39. The most appropriate GARCH-type model for Dubai crude oil is TGARCH(1,1) Skewed Student, with a VaR coverage of 0.17. Both WTI oil and Dubai crude oil have a coverage that exceeds 5%, implying a more conservative approach to estimating potential losses. Furthermore, the unidirectional causalities BTCUSD→BRENT and BTCUSD→S&P500 are identified. The results of the current research have practical implications for both importing and exporting countries, policy makers and investors. For companies in the oil sector, VaR informs operational decisions, such as production levels, capital expenditure and inventory management, by providing insights into market risk. Moreover, understanding the risks associated with oil aids in long-term strategic planning.INDEX TERMS backtesting, Bitcoin, Brent crude oil, GARCH model, price volatility, S&P500

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Oil price volatility and corporate cash holding

Cited by 12 publications

References 51 publications

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

Cash holdings and firm performance: empirical analysis from Shariah-compliant and conventional corporations

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

Exploring the Dynamics of Brent Crude Oil, S&P500 and Bitcoin Prices Amid Economic Instability

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