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Frontiers in Energy

Front. Energy    2016, Vol. 10 Issue (1) : 1-13
Does oil price affect the value of firms? Evidence from Tunisian listed firms
Kaouther ZAABOUTI1,Ezzeddine BEN MOHAMED2,*(),Abdelfettah BOURI1
1. Faculty of Economics and Management of Sfax, University of Sfax, Monastir 5046, Tunisia
2. Department of Accounting, College of Business & Economics, Qassim University, Buraidah 51431, Kingdom of Saudi Arabia
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A new debate on the potential impact of oil price changes on the value of firms was initiated in this paper. Using a stochastic frontier approach, an attempt was made to derive the optimal value Q* of firms and calculate the Q value observed. Then the shortfall (Q*–Q) which represents the inefficiency term was explained. Starting from 19 industrial Tunisian firms listed on the Tunis Stock Exchange between 2007 and 2011, the fact that variation of oil prices can largely explain distortions in the value of firms was empirically demonstrated.

Keywords industrial Tunisian firms      oil price      value of firm      stochastic frontier approach     
Corresponding Authors: Ezzeddine BEN MOHAMED   
Just Accepted Date: 25 December 2015   Online First Date: 01 February 2016    Issue Date: 29 February 2016
 Cite this article:   
Kaouther ZAABOUTI,Ezzeddine BEN MOHAMED,Abdelfettah BOURI. Does oil price affect the value of firms? Evidence from Tunisian listed firms[J]. Front. Energy, 2016, 10(1): 1-13.
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Abdelfettah BOURI
AuthorsPeriodContext of the studyObjectivesVariables and variables definitionsApproach/ModelData sourcesEmpirical findings
Haushalter et al. [7]1992–199468 oil and gas producersTo examine the sensitivity of the value of firms of oil producers to changes in future oil priceDependent variable:– firm debt ratio: the total debt scaled by the sum of the book value of debt and the market value of equity– Production cost: the cost of production per barrel of oil equivalentIndependent variable:– the percentage change in oil price– the change in the implied volatility on future oil price– the return on the CRSP value weighted indexMultifactor market model– The 1994 financial statements– COMPUSTAT– CRSP– New York Mercantile Exchange (NYMEX)– The change in oil price is negatively correlated with a firm’s debt ratio and its production costs
Jin and Jorion [19]1998–2001119 US oil and gas producersTo test the difference in the value of firms between firms that hedge and those that do not hedge their oil and gas price riskDependent variable:– Tobin’s Q: the ratio of the MV of financial claims on the firm to the current replacement cost of the firm’s assetsIndependent variable:– Hedging variable: relative delta oil (gas) production and relative delta oil (gas) reserve– Control variables:• Firm size: the proxy is log of total assets.• Profitability: return on assets: ROA• Investment growth: capital expenditures to total assets• Access to financial markets: to proxy this variable ???they used a dividend dummy that equaled one if the ???firm paid dividends on common equity in the current ???year• Leverage: the BV of long-term debt over the MV of ???common equity• Production costs: the cost of extracting oil and natural ???gas and included both the lifting cost and production ???taxes• Industrial and geographic diversification credit rating ???(quality)– Two–factor model– Univariate analysis– Multivariate analysis– COMPUSTAT– The 1998 to 2001 annual reports– The oil and gas prices have a significant positive effect on firm value of oil and gas producers– The hedging should increase the firm’s market value– Hedging reduces the firm’s stock price sensitivity to oil and gas prices
Boyer and Filion [8]1995–1998 and 2000–2002Oil and gas industry(105 Canadian oil and gas corporations)To assess the financial determinants of Canadian oil and gas company stock returnsDependent variable:– The return of Canadian energy stockIndependent variable:– Market return– Interest rate– Exchange rate– Crude oil price– Natural gas price– Debt– Production– Cash flows– Proven reserves– Drilling successThe common multifactor model– Bloomberg– Data stream– Canoil form– Woodside research– The return of Canadian energy stock is positively associated with the Canadian stock market return and negatively with interest rates
Sadorsky [11]1990–2006The S&P 1500(Consists of 600 small firms, 400 medium-sized firms, and 500 large firms)To examine the relationship between oil prices and stock prices when the size of firms is allowed to varyDependent variable– Market returns: the returns on a value-weighted US stock market indexIndependent variable– Firm size: annual sales– The interest rate: the spread between the yield on a 10-year US government bond and the yield on a 3 month US T Bill– Oil price returns: the log difference of the yearly return on the West Texas Intermediate (WTI) nearest crude oil futures contract, which trades on the New York Mercantile Exchange (NYMEX)– Oil price volatility: The square root of the sum of squared daily returns for each calendar yearA multifactormarket model– COMPUSTAT– CRSP– Data stream– The Federal Reserve Board of St. LouisThe relationshipbetween oil price movements and stock prices does vary with firm size and the relationship is strongest for medium-sized firms
Cameron and Schnusenberg [20]March 20, 2001 to September 30, 2008The three auto manufacturer indexes. (top six, SUV, and non-SUV)To investigate the relationship between oil prices and stock prices of automobile manufacturersDependant variable:– The excess return on an automobile manufacturer stock price index)Independent variable:– The three Fama-French factors: the return on an average stock– Oil price factor: the first proxy for the oil price factor is the excess percentage change in the daily price of WTI crude oil over and above the one-month T-bill rate. The second proxy is the daily change in the energy ETF, in excess of the one-month T-bill rate– The Fama-French model– Four–factor regression modelThe American Exchange (AMEX) traded– Energy Select Sector SPDR (XLE) ETF– US Energy Information Administration, July 2006– Ken French’s website (for the three Fama-French factors)There is an inverse relationship between rising oil prices and an accompanying reduction in auto manufacturer stock price
Elyasiani et al. [17]From December 11, 1998 to December 29, 2006Thirteen US industriesTo examine the impact of changes in the oil returns and oil return volatility on excess stock returns and return volatilities of 13 US industriesDependant variable:– The industry excess stock return (the Fama-French factors)Independent variable:– Daily return on one-month crude oil futures– Return on oil futures– Conditional volatility of oil futures returns– Excess market return– The GARCH (1,1) technique– The Fama-French factors– The Center for Research on Security Prices (CRSP) database.– The return on one–month crude oil futures (ROF), traded on the New York Mercantile Exchange (NYMEX)The oil price fluctuations constitute a systematic asset price risk at the industry level as nine of the 13sectors analyzed show statistically significant relationships between oil–futures return distribution and industry excess return
Dayanandan and Donker [10]1990–2008200 largest oil and gas companieslisted on the US stock exchangeTo investigate the relationship between commodity prices of crude oil, capital structure, firm size and accounting measures of firm performance using a sample of oil and gas firmsDependent variable:– Return on equity: net income divided by equityIndependent variable:– Total assets: log of total assets (US $)– Gearing: long-term liabilities divided by shareholder funds– Crude oil price: spot price– Average annualThe differenced GMM estimator– The annual financial statements from OSIRIS database.– The crude oil price from the West Texas Intermediate oil and gas indexThe crude oil prices positively and significantly impact the performance of oil and gas firms in North America using accounting measures of performance
Henriques and Sadorsky [34]1990–2007The company list is drawn from the S&P 1500 (consists of 500 large capitalization stocks, 600 midsize firms, and 400 small firms)To investigate how oil price volatility affects the strategic investment decisions of a large panel of US firmsDependant variable:– Firm investment: is measured by capital expenditure on property, plant and equipment.Independent variable:– The capital stock: is measured using total assets.– Tobin’s Q: is measured as market value of equity+ preferred.– Stock+ short-term liabilities net of short-term assets+ long-term– (Debt) / total assets– Cash flow: is measured as Income before extraordinary items+ depreciation and amortization)/ total assets.Two OLS models: a GMM model, and five system GMM models– COMPUSTAT data– The US Energy Information AgencyThere is a U shaped relationship between oil price volatility and firm investment
Narayan and Sharma [24]From 5 January 2000 to 31 December 2008560 US firms listed on the NYSETo examine the relationship between oil price and firm returnsDependant variable:– The returns of firmIndependent variable:– The growth rate in crude oil prices– The short-term US interest rate– The US-Euro nominal exchange rate– Firm size– GARCH (1, 1) Models– Regression modelEnergy Information Administration(– The oil price affects returns of firms differently depending on their sectoral location– There are a lagged effect of oil price on firm returns– The oil price affects firm returns based on different regimes– The oil price affects firm returns differently based on firm size
Ratti et al. [35]From 1990 to 20061910 non-financial firms in a group of 15 European countriesTo investigate the effect of relative energy price on firm-level investment in European countriesDependant variable:– Investment/ Capital: investment scaled by the capital stock lagged one periodIndependent variable:– Total assets at the beginning of the period– Capital stock: net property, plant and equipment.– Total debt: debt in current liability+ long-term debt– Cost of goods sold: cost of goods sold scaled by the capital stock lagged one period– Leverage ratio: the ratio of total debt to total assets– Cash stock: cash and equivalents scaled by total assets– Cash flow: income before extraordinary items+ depreciation and amortization scaled by capital stock– Net sales/ capital: net sales at the end of period t?1. scaled by capital– Investment: net capital expenditure– Firm size: equal to the (log of) total assets in US dollars energy priceThe dynamic model of investmentThe COMPUSTAT Global database– In manufacturing a 1% rise in real energy price reduces investment by a country's firms by 1.9% relative to that by firms in other countries with a smaller effect for non–manufacturing firms– The negative effect of a higher relative price of energy on firm–level investment is significantly less marked the larger the firm
Yoon and Ratti [36]Between 1971 and 20062665 US firms manufacturing (NAICS 311 to 339)To examines the effect of energy price uncertainty on firm-level investmentDependant variable:I/K: ratio of investment to capital stockIndependent variable:– Total assets: total assets at the beginning of the period– Capital stock: net property, plant and equipment– Capital expenditure: gross capital expenditure– Sale: net sales at the end of period t– Cash stock: cash and equivalents scaled by total assets– Cash flow: income before extraordinary items+ depreciation and amortization (MM$)– Total debt: debt in current liability+ long-term debt (Total) (MM$)– Investment: net capital expenditure scaled by capital (t–1)– Net sales: net sales at the end of period t scaled by capital– Cost of goods sold: cost of goods sold scaled by capital– Leverage: the ratio of total debt to total assets– Dividends payout: common dividends / (Operating income–interest expense–income taxes)– Producers Price IndexAn error correction (ECM) modelThe COMPUSTAT North-America (1970 – 2006):– The US Department of Energy:• Energy Information Administration (2002 index) (Btu= British thermal units)• The Bureau of Economic Analysis:– COMPUSTATA rise in uncertainty about energy priceplays a role in firm–level investment decisions by reducing the positive effect of sales growth on investment at firms
Aggarwal et al. [21]From the beginning of January 1986 to the end of July 2008all companies included in the S&P Transportationindustry indexTo examine the impact of oil price changes on transportation firmsDependent variable: Abnormal firm returnsIndependent variables:• Oil price shocks• Profitability• Investment growth• Leverage• Size• Runup• Industry effect• Industry concentrationChange in oil price– The well-known event study methodology,– Cross-sectional regression model– Two-factor model– West Texas Intermediate(WTI)– The New York Mercantile Exchange (NYMEX)– The CRSP database– Transportation firm returns are influenced negatively by oil price increases, risks are increased more by oil price declines– in the S&P transportation sub-sector, industry concentration is negatively relatedto returns, oil price risk, and trading volume, and asymmetrically related to returns and market betas
Wattanatorn and Kanchanapoom [30]From quarter 1, 2006 to quarter 4, 201011 sectors listed company on the Stock Exchange of Thailand (SET)To investigate the impact of crude oil prices on the profitability performance of sectorDependant variable:– ROA: quarterly return on assetIndependent variables:– Oil price: average OPEC countries spot price FOB ($ per Barrel).– Interest rate: one day Bilateral repurchase rate.– Exchange rate: exchange rate baht/US– Firm size: log of total assetThe method of panel data regression– SET Market Analysis andReporting Tool (SETSMART)– The Bank of Thailand (interest rate and rate of exchange)The oil prices havesignificant impact on profit of energy and food sectors
Tsai [22]From March 1995 through October 2008The 1500 firms that constituted the S&P 1500 index in 2008 To investigate whether a high oil price event that worsens the quality of a firm’s balance sheet in turn provides an additional transmission channel to the stock market, which then affects stock returnsDependent variable:– Stock returnsIndependent variables:– Oil price shocksAn event-study methodology– The COMPUSTAT data set– The FOMC announcement– The Trade and Quote (TAQ) database– The University of Chicago’s Center for Research in Security Prices (CRSP) databaseMore energy–intensive industries and durable–goods industries react more significantly to monetary shocks based on high oil price events than on those based on non–high oil price events
Ye et al. [16]2011All listed firms (768) from the seven regions of the CERTS of China in 2011To study the impact of energy-saving efforts on firm value, using the carbon emission rights trading scheme (CERTS) of China as an exogenous shockThe logarithm of the market capitalization of firm at the end of the last fiscal year– The book-to-market ratio of firm at the end of the last fiscal year– The unexpected earnings to control the firms’ earningsEvent studies– The CCER Database– The CSR indexThe CERTS increases the market value of energy–related firms; moreover, the energy–saving efforts of firms further influence their market value and investor reaction
Aye et al. [23]From February 1974 to December 2012South African manufacturing productionTo analyze the effects of oil price uncertainty on the manufacturing production of South AfricaDependant variable:– Manufacturing productionIndependent variables:– Real oil price– A bivariate GARCH-in-mean VAR simultaneously estimated– The US Energy Information Administration– The International Monetary Fund’s International Financial Statistics (IFS).The oil price volatility affects manufacturing production negatively given that decisions to invest in general and production decisions in particular are often influenced by potential returns
Mohanty et al. [15]From September1983 to August 20116 sub-sectors: 1) Travel and Tourism, 2) Airlines, 3) Gambling, 4) Hotels, 5) Recreational Services, and 6) RestaurantsTo explain the effect of oil price on US tourism and leisure sector by the cost pressures arising from higher energy pricesDependant variable:– The excess monthly return on industry portfolioIndependent variables:– The excess monthly return on the market portfolio– The difference in monthly return between a small cap portfolio and a large cap portfolio– The difference in monthly return between a portfolio of high book-to-market stocks and one of low book-to market stocks– The return on a zero investment portfolio long on winner and short on loser stocks– The monthly return on oil price– The Fama–French (FF) model– Multifactor regression model– Data stream– The West Texas Intermediate(WTI)The oil price effects are significantly negative for U.S tourism and leisure sector
Tab.1  Survey of the effect of oil prices on firm value
Tobin’s QAccording to [48], this ratio is the ratio between the market value of the firm (which is measured by the sum of the market value of equity and book value of total liabilities) and the book value of total. Based on the study of [49] this ratio is given by the following expression: Q = ((book value of assets+ the market value of the shares) ? book value of shares) / (book value of assets). According to these studies and that of [50], the main measure of the value of the firm is: Q = (book value of liabilities+ market capitalization) / (book value of assets)
SalesRevenues at the end of period t
IInvestment in fixed assets, based on the study of [46], it is defined as the change in the fixed assets plus depreciation
KThe fixed assets
I/KThe investment-to-fixed asset ratio
K/salesThe ratio of fixed assets to sales
The operating margin (operMar)The ratio of operating income before depreciation to revenues
Leverage (LEV)The ratio of the debt book value to the market value of the firm (market value is estimated as the total assets minus the book value of equity plus market capitalization)
The oil price (PP)The biannual oil prices bought calculated based on monthly prices taken from the intermediate west taxes (WTI) (Dollars per barrel)
The firm size (TE)Based on Refs. [21,33] studies, the logarithm of total assets is used as an indicator of the size of the firm
The board size (TCD)According to Ref. [28], the size of the board is the number of directors voted.
Tab.2   Variables’ notes
VariablesParametersEstimated values coefficients
ln salesb1?0.318(–0.959)
(ln sales)2b2–8.317(1.737)**
Log likelihood function–229.359
Tab.3    Estimation results
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