Does oil price uncertainty affect renewable energy firms' investment? Evidence from listed firms in China

This paper investigates the impact of international oil price volatility on renewable energy firms' investment in China, and it emphasizes the effect of oil price uncertainty on the sensitivity of investment-investment opportunity. Using the robust two-step system-generalized method of moments (GMM) estimator on a sample of listed renewable energy firms during the period from 2002-2016, we find that oil price uncertainty has significant negative impact on investment in the total sample, and that the small-size companies are more sensitive to the impact of oil price volatility than larger firms. It shows that oil price volatility can raise the connection between investment and investment opportunity, and this effect exists in small-size firms and non-SOEs firms, which are more likely to have financing constraint problems. It also exists in the firms with better governance. Firm-specific variables such as the debt capital ratio and the cash flow capital ratio are important in the determination of renewable energy firms' investment behavior. Our results have significant implications for policy makers and firm managers.