Managerial performance and oil price shocks*

Using an innovative method that segregates oil shocks into supply, consumption demand, and inventory demand factors, we find empirical evidence that managerial ability can have a significant but varying influence on firm performance under these circumstances. Generally, high-ability managers are most beneficial to manufacturing firms during oil shocks. In the event of oil supply shocks that are associated with negative economic implications, talented managers strongly outperform in (i) energy, (ii) agriculture, forestry, & fishing, and (iii) services industries. However, during oil demand consumption shocks that are symbolic of economic growth, competent managers underperform in the (a) energy, (b) mining, (c) construction, (d) retail, and (e) services sectors. Notably, high-ability managers in energy firms are associated with significant outperformance and underperformance during oil supply and consumption shocks, respectively. It is probable that these adept managers employ more active hedging programs to reduce financial distress or minimize earnings volatility to safeguard against oil price downturns. Similarly, in other industries, it is plausible that skillful managers may actively engage in oil price risk management (e.g., reducing reliance, alternatives, hedging, etc.). During supply shocks, the associated benefits outweigh the costs, and vice versa during oil consumption demand shocks.