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The Effect of the Financial Crisis of 2007-2009 on the Capital Structure of Oil and Gas Firms
Grady, Brian
Grady, Brian
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2017
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2017-05-19
Abstract
This study focuses on the capital structure of oil and gas firms. I analyzed the balance sheets and other financial metrics of twelve oil and gas firms to form the sample of this analysis. I used the theories of Modigliani and Miller as my initial basis for further exploration into the phenomenon of capital structure. I studied how Return on Assets, Cash on Hand, and Stock Price relate to a firm's total debt level. Further, my goal in this analysis was to determine if the Financial Crisis of 2007-2009 had a lasting impact on the capital structure of oil and gas firms. Specifically, I gathered financial data over a time period from 1996 to the most recent earnings releases (2015) to analyze the periods before and after the crisis. After reviewing the regression analysis, I determined that stock price was the most influential factor in capital structure decision making. My initial hypothesis was that the total level of debt among oil and gas firms would decrease due to a poor investment environment and an increased level of risk. However, I determined that total debt increased substantially after the crisis, in part because of the macro-economic event of quantitative easing. Thus, I found that my initial hypothesis did not hold true. Ultimately, the Financial Crisis itself impacted the relationship of the capital structure components.
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Finance