Balance sheet strength in the oil and gas industry: Saving for a rainy day or making hay while the sun shines

IF 1.2 Q3 BUSINESS, FINANCE

Advances in Accounting Pub Date : 2025-02-08 DOI:10.1016/j.adiac.2025.100806

Mark Anderson , Yan Ma , Han-Up Park

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Abstract

We examine how a strategic emphasis on balance sheet strength relates to investment decisions and performance over time for firms operating in a cyclical environment. From a series of discussions with industry insiders and readings of disclosures for prominent oil and gas (O&G) companies in Canada, we identify two groups of upstream O&G firms based on how they match their resources and capabilities with the uncertainties posed by industry economic cycles. One group of firms borrows and invests aggressively when oil prices are strong and funds are available – “making hay while the sun shines”, while the other group grows conservatively to build and maintain balance sheet strength – “saving for a rainy day”. We use average cash flows to debt for each firm over time to measure emphasis on balance sheet strength and separate firms into rainy day and making hay companies. We leverage two steep price declines to observe the behavior of firms over industry cycles: one triggered by the widespread 2008 financial crisis and the other by a distinct and prolonged O&G industry downturn in 2014. While investment declined generally in both cases, we find that the decline in investment was significantly less for rainy day companies than making hay firms after the 2014 downturn. Across time, we find that rainy day companies make shrewder acquisitions and operate more efficiently than making hay companies. Nonetheless, the capital market rewards making hay companies with higher market valuation, but this is reduced in downturns.

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油气行业的资产负债表实力：未雨绸缪或未雨绸缪

我们研究了在周期性环境中运营的公司，随着时间的推移，对资产负债表实力的战略重点与投资决策和绩效的关系。通过与业内人士的一系列讨论，以及对加拿大知名油气公司披露信息的阅读，我们根据油气公司如何将其资源和能力与行业经济周期带来的不确定性相匹配，确定了两类上游油气公司。一类公司在油价走强、资金充足时大举借贷和投资——“趁太阳好，趁热打铁”；而另一类公司则保守增长，以建立和维持资产负债表的实力——“未雨绸缪”。我们使用每家公司在一段时间内的平均债务现金流来衡量对资产负债表实力的重视程度，并将公司分为风雨公司和赚钱公司。我们利用两次急剧的价格下跌来观察企业在行业周期中的行为：一次是由2008年广泛的金融危机引发的，另一次是由2014年明显且持续的石油和天然气行业低迷引发的。尽管在这两种情况下，投资都普遍下降，但我们发现，在2014年经济衰退后，“倒霉公司”的投资下降幅度明显小于“赚钱公司”。随着时间的推移，我们发现，“倒霉公司”会比“倒霉公司”进行更精明的收购，运营效率也会更高。尽管如此，资本市场还是会以更高的市场估值奖励那些做空股票的公司，但在经济低迷时期，这种奖励会减少。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Advances in Accounting BUSINESS, FINANCE-

CiteScore

2.50

自引率

6.20%

发文量

期刊介绍： Advances in Accounting, incorporating Advances in International Accounting continues to provide an important international forum for discourse among and between academic and practicing accountants on the issues of significance. Emphasis continues to be placed on original commentary, critical analysis and creative research.