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School of Business | Department of Finance | Finance | 2014
Thesis number: 13648
Driven by energy: Commodity prices and corporate financing decisions
Author: Saarinen, Reeti
Title: Driven by energy: Commodity prices and corporate financing decisions
Year: 2014  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; energiatalous; energy economy; hinnat; prices; yritysjärjestelyt; company restructuring; yrityskaupat; corporate acquisitions
Pages: 131
Key terms: commodity market; hyödykemarkkinat; energy commodity; energiahyödyke; corporate finance; yritysjärjestely; financing; yritysrahoitus; mergers and acquisitions; yrityskauppa; equity offering; osakeanti; initial public offering; listautumisanti; seasoned equity offering; osakemyynti; energy sector; energiasektori; timing; ajoitus; oil; öljy; natural gas; luonnonkaasu; electricity; sähkö; coal; kivihiili; uranium; uraani; valuation; arvotus

The broad aim of this study is to find out if and how the market prices of energy commodities such as oil, gas, coal and electricity affect U.S. energy companies' corporate financing decisions. More specifically, the strategic and financial transaction types of interest include mergers and acquisitions, initial public offerings, and seasoned equity offerings. Considering companies whose core business is closely related to commodity-based products, the purpose is to investigate how the companies' financing needs, as well as other factors that could motivate equity issuance, are affected by developments in the commodity market.


The data used in the empirical part of the research comes from many sources, mainly SDC Platinum, Bloomberg Terminal and CRSP. M&A and equity offering data is confined to U.S. acquirers and issuers, and the sample covers a 34-year time period between the years 1979 and 2012. The methodology for retrieving basic information about the data consists mainly of descriptive statistics and univariate tests, whereas the approach for testing the hypotheses includes methods such as bivariate and multiple OLS and beta regression analysis. Numerous robustness checks are performed to ensure the accuracy and reliability of results.


The key finding of this study is that the prices of various energy commodities significantly affect strategic and financial decisions made by energy companies. A strong relationship is found especially between the oil price and acquisitions as well as equity issues made by oil companies. Oil price positively drives M&A volume in the oil industry through its increasing effect on deal sizes. Acquirers are found to earn higher abnormal returns around acquisition announcements when the oil price is high and acquirers' own stock is included in the consideration paid to the targets. Acquirers recognize this opportunity and increase their use of stock payment when the oil price rises. Additionally, a higher oil price is associated with a larger number and value of IPOs by oil companies. Similarly, the volume of oil company SEOs increases when the oil price rises. This can be partly explained by a growing need for external capital required to finance new positive NPV investments, but evidence is more supportive of a dynamic that oil companies time equity issues opportunistically, as suggested by the result that the proportion of equity financing increases when the oil price rises.
Master's theses are stored at Learning Centre in Otaniemi.