Oil Price Collapse and Firm Leverage in Resource-Dependent Countries

32 Pages Posted: 4 May 2018 Last revised: 18 Nov 2021

Date Written: April 26, 2018

Abstract

This study examines the financial channel between oil price volatility and the resource curse using firm-level data. A collapse in oil prices adversely affects firm borrowing in resource-dependent countries. However, unlike in non-resource-dependent countries where just the resource sector is harmed, both resource and non-resource firms are affected in resource-dependent countries in an oil price collapse. We also find evidence of a flight to quality in lending, implying that the decline in leverage can partly be attributed to a reduction in the credit supply. Our results suggest that oil price volatility operates via the financial channel to impede economic diversification in resource-dependent countries.

Keywords: resources and development, resource rich, capital structure, commodity prices, panel data

JEL Classification: Q32, O13, G32, Q02, G21

Suggested Citation

Kurronen, Sanna, Oil Price Collapse and Firm Leverage in Resource-Dependent Countries (April 26, 2018). BOFIT Discussion Paper No. 10/2018, Available at SSRN: https://ssrn.com/abstract=3173549 or http://dx.doi.org/10.2139/ssrn.3173549

Sanna Kurronen (Contact Author)

University of Helsinki ( email )

University of Helsinki
Helsinki, FIN-00014
Finland

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