Disclosure Regulation and Competitive Interactions: Evidence from the Oil and Gas Industry
56 Pages Posted: 30 Nov 2016 Last revised: 4 Aug 2018
Date Written: July 28, 2018
We identify the potential effects of mandatory disclosure on competitive interactions in the setting of public announcements of oil & gas (O&G) reserves. We first provide evidence consistent with O&G disclosures being informative for competitors; when one firm announces larger increases in O&G reserves, competitors experience lower announcement returns and higher real investments. We corroborate our inferences by exploiting three sources of institutional variation. First, the North American pipeline infrastructure constrains the supply of natural gas, and thus competition in the gas market, but not the supply of oil. Second, the introduction of the fracking technology substantially altered the competition dynamics in the natural gas market. Third, mandatory O&G disclosure rules were tightened in Canada and the US in a similar fashion, albeit at different points in time. When we turn to the effect of O&G reserves disclosures on the announcing firm, our results suggest that public disclosure limits the firm’s ability to exploit its competitive advantage. Overall, our evidence is consistent with the notion that mandatory disclosure of O&G reserves imposes proprietary costs, thereby highlighting important trade-offs in the market-wide effects of disclosure regulation.
Keywords: Disclosure Rules, Disclosure of Oil and Gas Reserves, Informational Spillovers, Competition, Real Externalities of Disclosure Regulation, Proprietary Costs
JEL Classification: M41
Suggested Citation: Suggested Citation