Oil price uncertainty and its impact on corporate decisions: an analysis of an oil-exporting economy

Purpose This study aims to examine the effects of oil price uncertainty (OPU) on three key firm-level economic variables: corporate cash holdings, cost of debt (COD) and financial performance within an oil-exporting economy. Further, it tests whether the OPU-firm performance nexus is affected by inflation. Design/methodology/approach The study examines a sample of 1,072 firm-year observations of publicly traded Saudi firms from 2009 to 2023. Multivariate regression models were applied to test the hypotheses of the study. Findings The baseline results indicate that heightened OPU is associated with higher corporate cash holdings, lower COD and weaker financial performance. Furthermore, the extended analysis confirms these findings via accounting for the moderating effect of inflation on the nexus between OPU and firm performance. Research limitations/implications The findings highlight the impact of OPU on firm operations in an oil-exporting economy. Policymakers can use these insights to promote economic diversification and reduce exposure to oil price shocks. Corporate managers are advised to adopt conservative financial policies to preserve cash and liquid assets during periods of heightened OPU. Economists should support strategies that improve operational efficiency and diversify revenue sources to sustain growth. Investors, especially foreign ones, should account for the OPU-equity return link when making portfolio decisions in oil-dependent markets. Originality/value The study contributes to the literature on the impact of OPU on firm-level economic variables within the context of an oil-exporting economy, where oil revenues play a dominant role. It is the first to explore whether the OPU-firm performance nexus is influenced by inflation risk.