Title: Oil price shocks and debt in the oil industry: An empirical analysis
Authors: Karol Kempa - Frankfurt School of Finance and Management (Germany)
Johannes Lips - Justus-Liebig University Giessen (Germany)
Christoph Funk - Justus-Liebig-University Giessen (Germany) [presenting]
Abstract: The effects of oil price shocks on the world economy have been extensively studied over the last decade. Yet, little is known of the effects of these on the U.S. oil industry on a firm level basis. We fill this gap by examining the relationship between (adverse) oil price shocks and the response of oil firms, the market for corporate loans and the impact on a firms capital structure. In particular, we will give an answer to the question of how oil firms respond to oil-price shocks and how these shocks affect their borrowing decision and creditworthiness. We combine data on individual syndicated loans with data from corporate financial statements for an analysis of a companies' financial decisions in great detail. First, we evaluate companies' borrowing behaviour and the loan characteristics, depending on the company's financial situation. Thereby, we gain insight in the relationship between an energy firms capital structure and their reaction to oil price shocks. Moreover, we differentiate companies along the oil industry's value chain. This allows us to determine the impact and exposure to price shocks depending on the position in the value chain. The overall findings of our research highlight the importance to monitor all financing channels of companies in order to be able to react to unforeseen deteriorations of market conditions.