The Impact of Oil Price Uncertainty on Working Capital Management: Evidence From India

Abstract

This study explores the impact of oil price uncertainty on working capital management for 21,051 nonfinancial Indian firms throughout 2000–2023. This study is based on the panel data set of 154,550 firm-year observations over 23 years from 2000 to 2023. We have proceeded with a fixed effect panel data regression model and robustness analysis to arrive at the results. Using the working capital ratio and industrial-adjusted WCR as two measurements of working capital management, we find that working capital management is positively associated with oil price uncertainty. Moreover, the intensity of this impact is subject to firm heterogeneity. Financially constrained and publically listed firms are exposed to greater risk during times of uncertainty. Our findings suggest that such firms must hold greater short-term capital to mitigate the associated risks. The originality of our research can be summed up into two aspects: First, our study is the first in the literature that explicitly investigated the intricacies of oil price uncertainty on working capital management. Second, our research expands the existing literature by probing in-depth analysis at various firm-specific heterogeneity levels and is probably among the rare studies that leverage extensive datasets to provide a thorough view of the perspective.