Conditional Capital Surplus and Shortfall across Renewable and Non-Renewable Resource Firms

Deni Irawan () and Tatsuyoshi Okimoto
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Deni Irawan: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI); Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan
Tatsuyoshi Okimoto: Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia

No 202165, LPEM FEBUI Working Papers from LPEM, Faculty of Economics and Business, University of Indonesia

Abstract: This study examines the conditional capital surplus and shortfall dynamics of renewable and non-renewable resource firms. To this end, this study uses the systemic risk index by Brownlees & Engle (2017) and considers two conditional systemic events, namely, the stock market crash and the commodity price crash. The results indicate that generally, companies in the resource sector tend to have conditional capital shortfall before 2000 and conditional capital surplus after 2000 owing to the boom of the commodity sector stock and the moderate-to-careful capital structure management adopted by these companies. This finding is especially valid for resource firms from developed countries, whose observations dominate the dataset used in this study. Furthermore, the analysis using the panel vector autoregressive model indicates a positive influence of commodity price, geopolitical, and economic policy uncertainties on the conditional capital shortfall. These uncertainties have also been proven to increase the conditional failure probability of firms in the sample. Lastly, the performance analysis shows that potential capital shortfall is positively related to market return, reflecting a high-risk high-return trade-off for this sector.

Keywords: systematic; risk; index; —; commodity; prices; —; macroeconomic; uncertainties; —; panel; vector; autoregression (search for similar items in EconPapers)
JEL-codes: E32 G32 (search for similar items in EconPapers)
Date: 2021-65, Revised 2021
New Economics Papers: this item is included in nep-mac and nep-sea
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