Oil price uncertainty and M&A activity

The Energy Journal, Forthcoming

37 Pages Posted: 16 Jun 2020 Last revised: 20 Jun 2022

See all articles by Samuel D. Barrows

Samuel D. Barrows

KIMEP University

Magnus Blomkvist

Audencia Business School; Audencia Business School

Nebojsa Dimic

University of Vaasa

Milos Vulanovic

EDHEC Business School

Date Written: May 22, 2020

Abstract

This study examines the impact of oil price uncertainty on mergers and acquisition (M&A) activity in the oil and gas sector. Analyzing this industry enables us to construct a natural forward-looking measure of oil price uncertainty, namely the implied crude oil volatility. Using a sample of U.S. firms in the oil and gas sector from 1994-2018 containing 4,323 announced transactions, we document that oil price uncertainty is negatively related to future M&A activity. Uncertainty is mainly a driver of horizontal and verticalM&A activity, where upstream firms are more affected by this uncertainty than downstream firms. Our results lend support to a real options explanation of investment under uncertainty where firms choose to defer investments as a response to increased uncertainty.

Keywords: Energy economics, M&A, Corporate investment, Product market uncertainty, Implied crude oil volatility, Oil and gas sector

JEL Classification: D81, G34, Q40, Q43, Q49

Suggested Citation

D. Barrows, Samuel and Blomkvist, Magnus and Dimic, Nebojsa and Vulanovic, Milos, Oil price uncertainty and M&A activity (May 22, 2020). The Energy Journal, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3607776 or http://dx.doi.org/10.2139/ssrn.3607776

Samuel D. Barrows

KIMEP University ( email )

2, Abai ave.
Almaty, 050010
Kazakhstan

Magnus Blomkvist

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Nebojsa Dimic

University of Vaasa ( email )

Wolffintie 34
Vaasa, 65200
Finland

Milos Vulanovic (Contact Author)

EDHEC Business School ( email )

24, avenue Gustave Delory
CS 50411
Roubaix, 59057
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
76
Abstract Views
788
rank
428,022
PlumX Metrics