What Is the Economic Value of the Extractive Industries Transparency Initiative (EITI) Information Disclosure?

Abstract

We examine the stock market reaction to the unilateral release of natural resources revenue payments information by the United States Department of the Interior in pursuance of the United States Extractive Industries Transparency Initiative (USEITI) candidacy implementation process. Our study provides, for the first time, an illustration of the economic value of information disclosed under the requirements of the Extractive Industries Transparency Initiative. Standard event study methodology, using a two-factor model incorporating an oil and gas industry index, is used to measure average cumulative abnormal return around the event date of the release of this information. We find positive average cumulative abnormal returns during the event period associated with the release of this financial information. The results thus show that, on average, the market reacts positively to the release of this information. The findings indicate that investors consider EITI information be relevant for the valuation of extractive companies, and thus, important for national resource allocation.

Keywords: Event study, Market reaction, Extractive Industries Transparency Initiative, U.S. extraction issuers, Natural resources, Dodd-Frank Act