Oil Shocks: Evidence from Asian Oil and Gas Industry

Abstract

Purpose: This research was conducted to identify the determinants, significance and relationship of capital structure variables of Asian oil and gas companies with pecking order and trade-off theories. The impact of Covid and oil shocks on the capital structure of these firms was also studied. Methodology: Fixed effect panel estimation method is used to test the hypothesis and determine the significance of the firm-specific variables and the impact of Covid and oil prices on the leverage ratio. Unbalanced quarterly data of 67 Asian oil and gas firms from 2016Q4 to 2020Q4 is used in the analysis. Findings: The research shows that tangibility, liquidity, profitability, and dividend payout were indeed significant factors in determining the capital structure, and all have negative associations with the leverage ratio. The results also indicate that the leverage of Asian oil and gas firms increased after the Covid and this impact was significant. Size and age also became important factors during the Covid crises. Size positively impacted the leverage ratio while age had the opposite influence. Oil shocks were also significant and displayed a negative relationship with capital structure. Age, however, did not remain an important factor with oil shocks. Originality/Implications: The effects of Covid and oil shocks in determining the capital structure of Asian oil and gas firms were studied which is a new addition in literature. The research also gives additional empirical evidence about significant determinants of capital structure and their relationship.