Impact of firm characteristics and country-level governance on global energy stocks during crises

Abstract

Two successive crises have raised the need to understand the dynamics of the global energy sector during these crises. This study examines the effects of the Russia-Ukraine War (RUW) and the COVID-19 pandemic on the energy sector across developed and emerging markets. Additionally, it examines the role of firm- and country-specific variables in stimulating energy stocks. We employ a rigorous event study methodology to analyse data from 387 firms spanning 44 countries and reveal that the RUW exerted a more significant global impact on the energy sector compared to the pandemic, both before and after the event day. Notably, emerging markets displayed early reactions before the global announcement of the COVID-19 pandemic. Remarkably, the American markets were hardest hit by the pandemic, while Asia and the Pacific, Europe, and the Middle East and Africa fared relatively better. Intriguingly, our cross-sectional analysis demonstrates that firm-specific characteristics (leverage and firm size) and the country-level governance variable, corruption control, influenced market performance during these events. Conversely, country-level development variables demonstrated minimal impact. This study enhances the understanding of how global crises uniquely impact the global energy sector. It also demonstrates how country-level governance variables could influence stock market returns.