Price uncertainty and corporate value

G. David Haushalter, Randall A. Heron, Erik Lie

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

This study examines the sensitivity of equity values of oil producers to changes in the uncertainty of future oil prices. We document that this sensitivity is negatively correlated with a firm's debt ratio and its production costs. These results indicate that companies that are more likely to experience financial distress or underinvestment from low cash flows are adversely affected by increases in the uncertainty of future cash flows. We conclude that corporate risk management can increase shareholder value by reducing the expected costs of financial distress and underinvestment.

Original languageEnglish (US)
Pages (from-to)271-286
Number of pages16
JournalJournal of Corporate Finance
Volume8
Issue number3
DOIs
StatePublished - Apr 30 2002

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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