what motivates merger and acquisition activities in the upstream oil gas sectors in the u s abstract the u s oil and gas o g industry has experienced a tremendous amount of growth in the last decade or so due to the development of horizontal drilling and fracking technology in the meantime the industry has experienced heavy merger and acquisition m a activity especially in the upstream sectors while these m a activities may be related to the aggregate m a waves in the country they are unique in their own respect we recognize that the m a activities in the energy industry in general and the o g sectors in particular can be different from the traditional sense of m a activities in this paper we provide some stylized facts on the m a patterns in the upstream o g sectors focusing on the factors that influenced these patterns our empirical evidence suggests that among the variables we studied oil price and o g production are the most important factors that influence m a activities while other variables do not show consistent effect across regions and definitions of m a in addition the m a activities had momentum building periods and had patterns consistent with a wave hypothesis our findings support the notion that industry specific factors are more important than general economic conditions in determining m a in the o g industry we find evidence supporting both the behavioral and neoclassical theories on m a

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

firm value and hedging evidence from u s oil and gas producers this paper studies the hedging activities of 119 u s oil and gas producers from 1998 to 2001 and evaluates their effect on firm value theories of hedging based on market imperfections imply that hedging should increase the firm s market value mv to test this hypothesis we collect detailed information on the extent of hedging and on the valuation of oil and gas reserves we verify that hedging reduces the firm s stock price sensitivity to oil and gas prices contrary to previous studies however we find that hedging does not seem to affect mvs for this industry in a classic modigliani and miller m m world with perfect capital markets risk management should be irrelevant when there are no information asymmetries taxes or transaction costs hedging financial risk should not add value to the firm because shareholders can undo any risk management activities implemented by the firm at the same cost in practice imperfections in capital markets create a rationale for lowering the volatility of earnings through hedging conventional explanations relate to the cost of financial distress tax incentives and the underinvestment problem risk management may also add value if hedging positions in derivatives contracts carry a premium that is not commensurate with risk or if active trading activities create a profit most empirical studies on this topic focus on the relation between corporate hedging and firm characteristics and try to determine whether the behavior of firms that hedge is consistent with extant theories the empirical evidence does not support any single theory however in addition most of these empirical studies provide only indirect evidence that hedging increases firm value recently however allayannis and weston 2001 directly test the relation between firm value and the use of foreign currency derivatives using a sample of 720 large firms between 1990 and 1995 they find that the value of firms that hedge on average is higher by about 5 this hedging premium is statistically and economically significant with a median market value mv of about

is oil supply choked by financial market pressures abstract since the late 1990s financial analysts have focused strongly on short term profitability for benchmarking and valuation of international oil and gas companies the increasing pressure for strict capital discipline among oil and gas companies may have reduced their willingness to invest for future reserves and production growth the current high oil price is partly due to low exploration activity in the oil industry the last decade we present and discuss the background for this development based on previous academic research industry trends and current valuation practices an estimated econometric model of stock market valuation among oil and gas companies suggests that analysts and companies have put exaggerate weight on short term earnings and accounting profitability we therefore expect that the attention will shift back to long term reserve and production growth

an option pricing approach to evaluating petroleum projects abstract option pricing applications in capital budgeting decisions are still in the development stage this paper uses concepts and methods from option pricing theory to evaluate real projects rather than financial ones within a petroleum projects context such real options include development and operations of satellite fields break even values of incremental capacity and flexibility value with compound development and operations options the option pricing results may be quite different from those obtained by traditional capital budgeting and decision tree approaches some related papers on real options are also briefly noted

turnout political preferences and information experimental evidence from peru abstract i combine a field experiment with a change in voting laws reducing the fine for abstention to assess the effects of monetary incentives to encourage voter participation in a real world election using experimental variation in the perceived reduction of the fine for abstention i estimate that receiving information about a reduction in the fine by 50 75 percent causes a decrease in turnout of 2 6 5 3 percentage points these estimates imply a cost elasticity of voting of 0 22 the reduction in turnout is driven by voters who are in the center of the political spectrum hold less political information and have lower subjective value of voting the increase in abstention does not change aggregate preferences for specific policies further involvement in politics as measured by the decision to acquire political information is independent of the level of the fine additional results indicate that the reduction in the fine reduces the incidence of vote buying and increases the price paid for a vote

strategic growth options we provide a strategic rationale for growth options under uncertainty and imperfect competition in a market with strategic competition investment confers a greater capability to take advantage of future growth opportunities this strategic advantage leads to the capture of a greater share of the market either by dissuading entry or by inducing competitors to make room for the stronger competitor as a result of this strategic effect payoffs are in a rough sense more convex than in the case of no investment in a growth option when the strategic advantage is strong increased uncertainty encourages investment in growth options higher uncertainty means more opportunity rather than simply larger risk if the strategic effect is weak the reverse is true on the other hand an increase in systematic risk discourages the acquisition of growth options our results contradict the view that volatility is a strong disincentive for investment

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

option exercise games an application to the equilibrium investment strategies of firms under the standard real options approach to investment under uncertainty agents formulate optimal exercise strategies in isolation and ignore competitive interactions however in many real world asset markets exercise strategies cannot be determined separately but must be formed as part of a strategic equilibrium this article provides a tractable approach for deriving equilibrium investment strategies in a continuous time cournot nash framework the impact of competition on exercise strategies is dramatic for example while standard real options models emphasize that a valuable option to wait leads firms to invest only at large positive net present values the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold copyright 2002 oxford university press

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

investment and uncertainty in the international oil and gas industry abstract the standard theory of irreversible investments and real options suggests a negative relation between investment and uncertainty richer models with compound option structures open for a positive relationship this paper presents a micro econometric study of corporate investment and uncertainty in a period of market turbulence and restructuring in the international oil and gas industry based on data for 115 companies over the period 1992 2005 we estimate four different specifications of the q model of investment with robust results for the uncertainty variables the estimated models suggest that macroeconomic uncertainty creates a bottleneck for oil and gas investment and production whereas industry specific uncertainty has a stimulating effect

aggregate uncertainty investment and asymmetric adjustment in the uk manufacturing sector theory suggests that the level of uncertainty facing firms should affect both the rate of adjustment to and the steady state level of investment although there is ambiguity about the sign of the effect a non linear model of investment behaviour incorporating time varying adjustment speeds with threshold effects is estimated for the uk manufacturing sector the most general non linear specification is found to be most congruent with the data uncertainty has a large and significant effect on both levels and rates of adjustment

geology or economics testing models of irreversible investment using north sea oil data this paper tests the main implications of models of irreversible investment using data from operations in the oil fields in the north sea discrete time hazard regression models are used to ascertain the influence of economic variables the expected price of oil the variance of the price of oil and the level of reserves on the lag between the discovery of a field and the decision to develop the field we are able to control for heterogeneity in the data by incorporating variables which account for both the geological features of each field and individual operator characteristics the results indicate that the expected price of oil and the level of reserves are important in influencing the appraisal duration but that the variance of the oil price is not variables capturing the non economic features of the individual fields are also found to be significant factors affecting the appraisal lag copyright 1994 by royal economic society

investment and demand uncertainty this paper investigates the effects of uncertainty on the investment decisions of a sample of italian manufacturing firms using information on the subjective probability distribution of future demand for firms products according to the entrepreneurs the results support the view that uncertainty weakens the response of investment to demand thus slowing down capital accumulation consistent with the predictions of the theory there is considerable heterogeneity in the effect of uncertainty on investment it is stronger for firms that cannot easily reverse investment decisions and for those with substantial market power we show that the negative effect of uncertainty on investment cannot be explained by uncertainty proxying for liquidity constraints

international oil price uncertainty and corporate investment evidence from china s emerging and transition economy we develop and estimate a dynamic model of investment to investigate the impact of international oil price uncertainty on corporate investment expenditures in china s emerging and transition economy we further examine whether state ownership affects the relationship between oil price uncertainty and corporate investment consistent with the model s prediction the main finding is that oil price uncertainty exerts a negative impact on corporate investment expenditures in addition compared with state owned listed companies the negative influence of oil price uncertainty on corporate investment is more significant for non state owned listed companies our further analysis using the market oriented reform of refined oil pricing in 2008 as a quasi natural event shows the variation between the low degree marketization period and the high degree one in terms of the relationship between international oil price uncertainty state ownership and corporate investment expenditures

unintended consequences of china s coal capacity cut policy in early 2016 china introduced additional capacity cut policies to rebalance supply in the coal market to match demand that had been reduced by slow economic growth and strict environmental regulation ensuing disruptions to the coal market caused these policies to be revised and subsequently discarded as decision makers tried to find a balance between efficient supply economic and social stability and environmental sustainability this paper explores the causes of these unintended consequences using an extended version of the kem china model the results reveal that full and partial compliance with the capacity cut policies results in a significant gap between supply and demand this suggests that implementation of the policy was technically infeasible even allowing for a significant increase in coal prices and economic costs besides significant differences in coal prices and output profiles are registered across the country we argue that the heterogeneous nature of the chinese coal market and policy compliance was a major factor leading to the unintended consequences rendering a single national price benchmark inappropriate as a policy gauge we propose that the capacity cut policy should be differentiated across regions and even types of coalmines market approaches would be preferable to the command and control instruments and policy distortions that cause excess capacity should be removed

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

investment and competition this paper examines how industry structure affects corporate investment patterns real options theory shows that deferring irreversible investment in the face of uncertainty is valuable theory also shows that the value of waiting to invest falls if investment opportunities are contestable consistent with these theories we find that firms in monopolistic industries exhibit lower investment q sensitivity and are slower to invest than firms in competitive industries however we find that investment q sensitivity and investment speed are highest in oligopolistic industries suggesting that the value of investing strategically can outweigh the value of waiting indeed oligopolistic industries experience less entry and more exit than other industries