Risk management activities for oil and gas producers and the impact on firm value

Yildiz Savas, Eren; Kapusuzoglu, Ayhan

Risk management activities for oil and gas producers and the impact on firm value

2020

Yildiz Savas, Eren | Kapusuzoglu, Ayhan

This study analyses whether hedging activities of oil and gas firms have a significant effect on the performance of the companies. The performance of companies is proxied by Tobin’s Q and panel regression models are built to estimate the coefficients for firm value and derivative use. The speculative use of derivatives is eliminated in models by the regulations under IFRS and GAAP. The results give critical information regarding asymmetric information and signalling effect. Since the coefficient of derivatives use is negative, it shows the critical meaning of disclosures on the financial healthiness. If companies are publishing high level of hedging activities, it might be a warning for investors to avoid investing at that company. This study also seeks for explanation behind firms’ hedging decisions. To our knowledge, it is among the first studies with a wide range of region and data.

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