Oil price uncertainty and corporate debt choice: International evidence

We examine the relation between oil price uncertainty (OPU) and corporate debt choice. Using a comprehensive set of firms from 72 countries excluding the U.S., we document that OPU steers firms towards opting for private debt over public debt. The asymmetry (up and down volatilities) and diverse sources (supply and demand shocks) of OPU exert distinct influences on this debt choice. Moreover, oil users and substitute firms predominantly drive the preference for private debt than oil producer firms. A stronger relationship is observed for firms from non-common law countries, belonging to industries susceptible to higher environmental litigation risk, and needing higher capital expenditure and dividend payout. Furthermore, OPU diminishes the negative impact of global board reforms and market competition on private debt choice. Our additional analyses suggest that OPU is positively associated with cash flow and return on asset volatilities, which could serve as potential channels for our main findings. • OPU steers firms towards opting for private debt over public debt. • The asymmetry (up and down volatilities) and diverse sources (supply and demand shocks) of OPU effects exist. • Oil users and substitute firms predominantly drive the preference for private debt. • OPU is positively associated with cash flow and return on asset volatilities.