The ups and downs of oil prices: asymmetric impacts of oil price volatility on corporate environmental responsibility

Purpose This study aims to show the difference between the two types of oil price volatility resulting from either increases or decreases in oil prices and find evidence of the differential effect of oil price volatility on firms' environmental initiatives. Design/methodology/approach This paper examines how volatility in crude oil prices affect corporate environmental responsibility among US firms (excluding oil and gas producers) between 2002 and 2020, with a particular focus on the differential impact of oil price volatility. Findings The authors find that a one standard deviation increase in oil volatility resulting from positive changes in oil prices corresponds to a 12.7% decrease in environmental score, while the same increase in volatility from negative changes in oil prices leads to a 5.5% decrease in environmental score. Financial constraints are identified as a potential channel through which oil price volatility influences environmental activities. Specifically, a one standard deviation increase in oil volatility from positive price changes leads to an 18% decrease in environmental score for firms with high financial constraints, compared to an 8% decrease for firms with low financial constraints. Originality/value This study builds on the research of Phan et al. (2021) and Maghyereh and Abdoh (2020). Pan et al. reveal a negative association between oil price uncertainty and corporate social responsibility in the oil and gas sector, yet they overlook 1) the asymmetric impacts of oil price changes and sectoral disparities. Moreover, 2) their inclusion of a year-fixed effect undermines their findings’ reliability, as the oil price volatility variable remains constant across all firm-year observations, and including a year-fixed effect diminishes its explanatory power.