1. What Drives Credit Spreads of Oil Companies? Evidence from the Upstream, Integrated and Downstream Industries
- Author
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Ma, Yihong, Cottrell, Simon, Delpachitra, Sarath, Yu, Xiao, Jiang, Ping, and Minh, Quan Tran Ha
- Subjects
Epidemics ,Medium term notes ,Leverage (Finance) ,Petroleum industry -- International economic relations ,Commodity futures ,Credit default swaps ,Dollar (United States) ,Business ,Economics ,Petroleum, energy and mining industries - Abstract
The aim of this paper is to examine how a shock in the oil industry affects firms' debt funding obligations using credit default swaps in different segments of the oil industry's value chain. In particular, it focuses on two types of shocks suffered by upstream, integrated and downstream firms in the industry, namely (1) endogenous shocks resulting from oil-market shocks, and (2) exogenous shocks resulting from the recent financial crisis and the Covid-19 pandemic. Using a wide data set ranging from 2007 to 2020, this paper measures the dynamic relationships between the CDS spreads of oil-related firms, US dollar exchange rates, and crude oil prices at different sectors of the oil-industry value chain, namely, upstream, integrated and downstream. Overall results show that the upstream firms have suffered the largest impacts during the COVID-19 crisis, when experiencing shocks from USD rates or oil prices. Integrated firms have suffered the second-largest effects, however, and interestingly, no significant impacts from shocks are observed on CDS spreads for downstream firms. Keywords: CDS Spread, Oil, Corporate Funding, Upstream. Downstream, 1. INTRODUCTION Post the 1990s, the world has seen a further increase in debt-issuance activities by the corporate sector in financial markets not only due to the diversity of the [...]
- Published
- 2023
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