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Are Oil Industry Mergers Becoming Less Profitable?

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  • Samuel D. Barrows

    (Senior Lecturer at STEM Business School, Turan University, Kazakhstan and Doctorate of Business Administration Candidate, Toulouse Business School, France)

Abstract

Are oil industry mergers becoming less profitable? This study evaluates oil industry consolidations that occur during the sixteen-year time frame between 1998 and 2013 to find out. This quantitative study focuses on the stock price total return performance of acquirer companies over a four year horizon for each merger transaction. The portfolios created from these transactions provide for an analysis of the economics of the mergers after full integration of target companies. Four benchmarks are incorporated to provide various economic adjustment factors. There are seven cases presented that show that oil industry mergers are becoming less profitable. Implications are that companies may chase mergers as an easy way to increase returns, but this may not occur. As ever larger companies chase the remaining players and bid up their selling prices, increased returns may not always be the outcome.

Suggested Citation

  • Samuel D. Barrows, 2018. "Are Oil Industry Mergers Becoming Less Profitable?," International Journal of Energy Economics and Policy, Econjournals, vol. 8(2), pages 31-38.
    • Handle: RePEc:eco:journ2:2018-02-4
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    References listed on IDEAS

    as
    1. Furfine, Craig H. & Rosen, Richard J., 2011. "Mergers increase default risk," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 832-849, September.
    2. Bahattin Buyuksahin, Thomas K. Lee, James T. Moser, and Michel A. Robe, 2013. "Physical Markets, Paper Markets and the WTI-Brent Spread," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
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    4. Gary Gorton & Matthias Kahl & Richard J. Rosen, 2009. "Eat or Be Eaten: A Theory of Mergers and Firm Size," Journal of Finance, American Finance Association, vol. 64(3), pages 1291-1344, June.
    5. Samuel D. Barrows, 2017. "Do Oil Industry Merger Waves Reveal Any Trends?," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 142-151.
    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    8. Mortal, Sandra & Schill, Michael J., 2015. "The Post-Acquisition Returns of Stock Deals: Evidence of the Pervasiveness of the Asset Growth Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(3), pages 477-507, June.
    9. George Ford, 2011. "An investigation into the relationship of retail gas prices on oil company profitability," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 4033-4041.
    10. Andrade, Gregor & Stafford, Erik, 2004. "Investigating the economic role of mergers," Journal of Corporate Finance, Elsevier, vol. 10(1), pages 1-36, January.
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    Cited by:

    1. Zhijuan Zhang & Marcin Lis, 2020. "Modeling Green Energy Development Based on Sustainable Economic Growth in China," Sustainability, MDPI, vol. 12(4), pages 1-18, February.
    2. Samuel D. Barrows, 2020. "Did the US Shale Oil Revolution Ruin Oil Industry Stock Market Returns?," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 1-8.
    3. Valery F. Anisimov & Yuri V. Truntsevsky & Valery V. Bessel & Saltanat Yessetova, 2020. "Prospects of Development of the Oil Industry in the Global Economy and in the Regional Economies," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 265-279.

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    More about this item

    Keywords

    Oil Industry Mergers; 1998-2013; Brent Crude Oil;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment

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