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Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data

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Kumar, B., Sujit, K. Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data. Applied Economics Quarterly, 65(1), 45-69. https://doi.org/10.3790/aeq.65.1.45
Kumar, B. Rajesh and Sujit, K. S. "Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data" Applied Economics Quarterly 65.1, , 45-69. https://doi.org/10.3790/aeq.65.1.45
Kumar, B. Rajesh/Sujit, K. S.: Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data, in: Applied Economics Quarterly, vol. 65, iss. 1, 45-69, [online] https://doi.org/10.3790/aeq.65.1.45
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Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data

Kumar, B. Rajesh | Sujit, K. S.

Applied Economics Quarterly, Vol. 65 (2019), Iss. 1 : pp. 45–69

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/aeq.65.1.45
Language
English
Pages
25
Keywords

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Author Details

Kumar, B. Rajesh, Corresponding author. Institute of Management Technology, UG-02, Dubai International Academic City, PO Box 345006, Dubai, UAE.

Sujit, K. S., Institute of Management Technology, Dubai International Academic City, UAE.

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Abstract

Abstract

This study examines the role of firm-level financial and operational characteristics in explaining the market valuation of oil and gas-based energy companies. Using panel data based on 82 major oil companies, the study explores the value drivers involved in value creation of integrated and independent oil companies. In other words, the study explores the impact of investment, financing, and dividend decisions on value creation in energy firms.

The results suggest that stock market is skeptical about the risky capital expenditures undertaken by oil and gas firms. The study finds some evidence for signaling theory of debt financing, which suggests that the use of higher debt by energy companies is viewed positively by markets. Higher dividend payment is viewed negatively by markets. The enterprise value variable EVEBITA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is positively related to share price with statistical significance. Higher profitability of oil firms leads to greater value creation for oil and gas-based firms. The higher the liquidity position, the greater the value enhancement of oil and gas firms would be. The study finds some evidence for the positive association of operating characteristics with market valuation of oil-based energy firms. Higher reserve replacement leads to higher valuation and is viewed positively by market analysts.

This study aims to provide new insights into how financial and operational information relates to the market valuation of both independent and integrated oil companies. The identification of factors for value creation in stock market is critical for the design of effective policies for wealth creation.

JEL classifications: G30, G31

Keywords: Market Valuation, Profitability, Reserve Replacement, Integrated Oil Companies

Table of Contents

Section Title Page Action Price
B. Rajesh Kumar / K. S. Sujit: Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data 1
Abstract 1
1. Relevance 2
2. Theoretical Background 2
3. Data and Methodology 7
Table 1: Descriptive Statistics 1
Table 2: Variables with a High Correlation Coefficient 1
4. Empirical Results 1
Table 3: Test of AR(1) for Serial Correlation 1
Table 4: Share Price as Dependent Variable 1
Table 5: Holding Period Returns as Dependent Variable (Fixed Effect Model) 1
Table 6: PE Ratio as Dependent Variable (Fixed Effect Model) 1
Table 7: MBR as a Dependent Variable 1
Table 8: Summary of Results from all Models 2
5. Conclusions and Implications 2
References 2

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