Corporate investment decisions and related commodities: International evidence from energy and mining industries

K. Smimou, M. Abrokwah and A. Drougas

Energy Economics, 2025, vol. 149, issue C

Abstract: This study examines the crucial effect of commodity futures fundamentals on managerial corporate investment decisions of diverse samples of commodity producers and related firms in the U.S. and Canada. Findings show that managers' upward or downward shift of investments manifested by a change of capital allocation of commodity firms are driven more importantly by price movement of the most highly liquid commodity they produce in addition to hedging more than speculative activities of participants in the futures markets. Despite an assumed influential role, speculators' positions in the futures markets do not convey a sufficiently strong signal to influence managerial investment decisions of commodity firms aiming to fine-tune their capital and internal investment allocations, most notably for individual U.S. mining firms. Given the inextricable commodity–stock relationship, results suggest that managers learn, and act based on hedging activities in commodity futures markets but less so from speculators' positions on specific highly liquid commodity futures. This channel of influence may play the role of another corporate governance mechanism whereby commodity futures' participants exert a strong influence directly or indirectly on corporate policy decisions pertinent to internal investment.

Keywords: Corporate investment decisions; Corporate finance; Corporate policy; Commodity firms; Commodity hedgers; Speculators; Commodity futures; Capital allocation (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G23 G31 M54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005936

DOI: 10.1016/j.eneco.2025.108766

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