Capital Structure Determinants in Oil & Gas Companies: A study of factors critical to capital structures in the timeframe 1997-2014

Snorre Myhre

Student thesis: Master thesis


How a company determines its capital structure and how specific events in time (booms/recessions) effects that structure, has in earlier academic work been thoroughly researched for multiple industries but has yet to be done for the oil & gas industry. By looking at how the leverage ratio of multiple oil & gas companies changes through a timespan of 17 years, this thesis aims to give an insight into what are the major determinants to those changes. What decides the capital structure of an oil & gas company. By using both firm specific- and macroeconomic factors in a panel data regression model, the thesis tries to find which of the three corporate finance theories, trade-off theory, pecking order theory and market timing theory dominates when companies choose a capital structure. The results indicate that firm size and tangibility are the most prominent firm specific factors, with GDP growth rate and lagged term spread as the most influential macroeconomic factors. Other than that, I have found a slightly higher degree of explanatory power from the model when adding time-invariant factors than time-variant factors. This means that to some degree, unobserved company specific factors seems to be of significance when a company decides its leverage ratio. The regression results indicate that the companies do not follow only one single capital structure theory.But the trade-off theory seems to dominate followed by the pecking order theory when looking at firm specific factors. When looking at macro factors, a combination of pecking order theory and market timing theory seems to give the best explanation to the reasoning behind the companies choices.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages87