# **Table 2: Changes in Oil Price and Change in Stock Prices of Oil Firms.**

|_This table reports regression result_<br>_of oil prices, using OLS and IV (hete_<br>∆ll(_stock), is the daily return of a_<br>_0.05,_<sup>_***_</sup>_p < 0.01. Standard errors a_<br>|_s of change i_<br>_roscedastici_<br>_firm’s stock_<br>_re clustered_|_n the logari_<br>_ty-based ide_<br>_price. Note_<br>_at the firm l_<br>|_thm of oil firm_<br>_ntification) a_<br>_s: Standard e_<br>_evel._|_s’ stock pri_<br>_pproaches._<br>_rrors are in_|_ces on chang_<br>_The depende_<br>_parentheses,_<br>|_es in the logarithm_<br>_nt variable,_<br><sup>_*_</sup>_p < 0.10,_<sup>_**_</sup>_p <_|
|---|---|---|---|---|---|---|
|∆ll(stock)<br>||OLS|||IV||
||(1)|(2)|(3)|(4)|(5)|(6)|
|∆ll(oil)<br>|0.318***|0.319***|-1.994***|0.428***|0.443***|-2.559***|
||(0.0380)|(0.0381)|(0.203)|(0.0678)|(0.0768)|(0.456)|
|∆ll(oil)t-1<br>||0.0398**|0.0340**||0.0962**|0.0471|
|||(0.0157)|(0.0156)||(0.0409)|(0.0403)|
|∆ll(stock)t-1<br>||-0.0482|-0.0462||-0.0603|-0.0472|
|||(0.0594)|(0.0586)||(0.0594)|(0.0592)|
|∆ll(oil)*log(oil)t-1|||0.749***|||0.954***|
||||(0.0765)|||(0.166)|
|log(oil)t-1|||-0.0173***|||-0.0160***|
||||(0.00317)|||(0.00361)|
|Constant|yes|yes|yes|yes|yes|yes|
|Number of observations|5,246|5,203|5,203|5,246|5,203|5,203|
|R-squared|0.069|0.072|0.124||||
|Firm fixed effects|yes|yes|yes|yes|yes|Yes|

The elasticity is smaller for lower levels of oil prices. Both the OLS and IV results (columns [3] and [6]) point to such nonlinearity. The interaction terms between ∆l oil)*log(oil)t-1 in both columns are significantly positive. In column [6], the coefficient for the interaction term is 0.95. This coefficient implies that every 10 percent lower oil price level reduces the elasticity by 0.095. ll( The finding that the elasticity is smaller for a lower level of oil prices is surprising. Our prior is that at low levels of oil prices, the response of stock prices to the same percentage decline in the oil price should be larger because the likelihood of bankruptcy is larger. However, the empirical results are opposite to our priors. Investors were more likely to hold on to their shares when oil prices became lower. Possible explanations are that investors might have expected a quick rebound of oil prices from these “unsustainable” low levels or that investors expected policy responses such as firm bailouts.

# **III.2 On the Role of Debt**

This section asks whether the effect of lower oil prices on oil firms’ stock prices is larger for oil firms with a higher level of debt _._ In the baseline results, we consider the pre-existing debt position during the last quarter of the calendar year 2019.<sup>14</sup> In other words, we take the debt position and the firm’s capital structure as given. We consider two measures of debt levels. First is total debt over assets. In addition, cash is also included. Second, we unpack total debt into long-term debt and short-term debt. Table 3 presents both the OLS and IV results about the role of total debt, while Table 4 presents the results for separate debt categories.

> 14 In the robustness section, we consider debt levels and other financial variables at the immediately previous quarter.

9