Investigating the Relationship between Investment and Uncertainty in Iran's Oil Industry

Abstract

The growth and survival of a company are based on making appropriate and principled investment decisions. This is while a company always continues to operate in an unpredictable environment and under the influence of various shocks. In this regard, this issue has created a two-way relationship between investment and uncertainty. Therefore, this study examines the relationship between investment and uncertainty in the Iranian oil industry during the period 2010 to 2019 for 32 listed companies active in the oil industry. In this regard, using the vector auto-regression approach with generalized auto-regression conditional variance heterogeneity moment, first, the structural shocks of the oil market are extracted, and then using the generalized moments approach of the Tobin q investment model is estimated. Findings show that the shock caused by global demand (εpw), and the shock caused by the global stock market (εsp) have a negative and significant effect on the ratio of gross investment to corporate capital stock. The ratio of gross investment to the company's capital stock has a negative effect on its amount with a one-year delay, which is also statistically significant. Oil supply shock (εopw) and oil price shock (εrp) have a positive and significant effect on the ratio of gross investment to the company's capital stock. The ratio of market value to the replacement value of company assets has a positive and significant effect on the ratio of gross investment to capital stock. In this regard, due to the effectiveness of oil companies’ investments in global variables such as global oil price fluctuations and supply and demand shocks, investors' stock insurance against sudden fluctuations and shocks is recommended.

Keywords

• oil industry
• investment
• uncertainty