Bankruptcy Spillover Effects on Oil and Gas Industry

Abstract

This paper studies bankruptcy spillover effects onto portfolios of non-bankrupt firms in oil and gas industry. Using hand-collected data on bankruptcy filings in oil and gas industry from 2000 to 2017, I find that, on average, the value-weighted portfolios of non-bankrupt oil and gas firms experience a negative stock price reaction 4-day around a bankruptcy filing announcement in the industry. This negative stock price reaction is not only statistically significant at 1% but also economically significant as the 4-day cumulative abnormal losses are averagely calculated at $4.47 billion. Further analyses on oil and gas sub-industries lead to the findings that while the Oil & Gas Production Portfolio and Oil & Gas Field Machinery & Equipment Portfolio are the most affected, the Petroleum Refining Portfolio and Petroleum Products Wholesalers Portfolio show very little to no evidence of being affected by bankruptcy filing announcements within the industry wide. I also find that the magnitude of spillover effects is conditional on the size of bankrupt firms and the degree of competition of sub-industries but not on the chapters of the filing and the sub-industry leverage. These findings are robust after controlling for sub-industry-specific factors and market-wide factors.

Keywords: Bankruptcy filing, spillover effects, oil and gas industry, and oil price

JEL Classification: G30, G32, G33