Oil price uncertainty and IPOs

Abstract

We examine the impact of oil price uncertainty on IPO volume in the oil and gas sector. By using the implied volatility of oil options, a forward looking exogenously determined uncertainty measure, we can clearly identify the effect of uncertainty on the going public decision. Oil price uncertainty has a strong negative relation to IPO volume, a one standard deviation decrease in the implied volatility results in a 25%-29% increase in the number of quarterly IPOs. The effect is concentrated among the price sensitive upstream producers. We further report that uncertainty negatively impacts the IPO withdrawal decision and increases the value to postpone the offering.

Keywords: Energy economics, IPOs, Implied crude oil volatility, Oil and gas sector, Oil price uncertainty

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