Capital structure adjustment speed in European oil and gas firms

: evidence from the 2014–2016 oil price plunge

Abstract

This study employs a partial adjustment model to examine the effects of the oil price plunge from 2014 to 2016 on the speed of adjustment (SOA) among European oil and gas firms during the second decade of the 21st century. Following Dang et al.'s (2014) approach, a dummy variable, Oil_Plunge_DUM, is included to indicate the years of the oil price plunge from 2014 to 2016. An interaction term is used to assess the combined effect of this dummy variable with the lagged growth rate of oil prices and the lagged market leverage ratio. My model finds evidence that the plunge in oil prices from 2014 to 2016 negatively affects the SOA. To robust my findings, I segment the dataset into oil importers and exporters. The results indicate that the oil price plunge from 2014 to 2016 negatively affects SOA in oil-importing nations, while no significant impact is observed for oil exporters. Additionally, since the study sample period includes the initial year of the COVID-19 pandemic, I further analyze this year's effect on SOA. However, the analysis reveals insufficient evidence of significant impacts on SOA during that year. Lastly, when using an alternative measure, the book leverage ratio, I find no evidence that the oil price plunge affects the overall SOA of the sample.

Date of Award	3 Feb 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)