Vertical Integration and Valuation of International Oil Companies

14 Pages Posted: 25 Nov 2014

See all articles by Bard Misund

Bard Misund

University of Stavanger

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Marius Sikveland

University of Stavanger

Multiple version iconThere are 2 versions of this paper

Date Written: November 24, 2014

Abstract

This paper studies financial statement information from the 50 largest international oil and gas companies during 1992 to 2011 and evaluates their relation to market values. In particular, we examine how this relationship is affected by accounting method choice (successful efforts versus full cost accounting) and vertical integration. We find that net income is more value relevant for full cost companies compared to companies that use the successful efforts accounting method. Furthermore, the value relevance of oil and gas reserves is different among successful efforts and full cost companies. Larger reserves among successful efforts companies are awarded a premium by stock markets. The value relevance of book value is significantly lower for integrated companies than for pure upstream companies. We also find that the value relevance of oil and gas reserves is different for upstream and integrated companies.

Keywords: company valuation, value-relevance, financial analysis, oil and gas industry

JEL Classification: F230, G000, L710, M410

Suggested Citation

Misund, Bard and Osmundsen, Petter and Sikveland, Marius, Vertical Integration and Valuation of International Oil Companies (November 24, 2014). CESifo Working Paper Series No. 5061, Available at SSRN: https://ssrn.com/abstract=2529900

Bard Misund (Contact Author)

University of Stavanger ( email )

PO Box 8300 Forus
Stavanger
Norway

HOME PAGE: http://www.uis.no/article.php?articleID=76145&categoryID=11199

Petter Osmundsen

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Marius Sikveland

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

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