Energy Firms Research Articles

De-risking of Green Investments through a Green Bond Market: Empirics and a Dynamic Model

A substantial increase of green investments is still required to reach the Paris Agreement's emission targets. Yet, capital markets to expedite green investments are generically constrained. Literature has shown that governments could de-risk such investments. Empirical beta pricing and yield estimates reveal some public involvement in the green bond market, especially for long maturity bonds. We provide empirical evidence that Governments and Multilateral organizations can de-risk green investments by supporting the issuance of green bonds in contrast to private green bonds - that show higher yields, volatility and beta prices - and conventional energy bonds, that are more volatile due to oil price variations. Since lower betas also mean lower capital costs, we use these empirical results and run a dynamic model with two types of firms, modeling the economic behavior of innovators (renewable energy firms) and incumbents (fossil fuel firms). The simulations of our model show that de-risked interest rates help to phase in renewable energy firms in the market and avoid a sharp debt increase. However, when the new entrants carry negative pay-offs for a longer time, it might not be sufficient to keep the debt low and to avoid a shake-out in the market. Subsidies and carbon taxation can complement the role of the de-risked interest rate and expedite the energy transition.

Gini and Entropy-Based Spread Indexes for Primary Energy Consumption Efficiency and CO2 Emission

Primary energy consumption is one of the key drivers of global CO2 emissions that, in turn, heavily depends on the efficiency of involved technologies. Either improvement in technology efficiency or the expansion of non-fossil fuel consumption requires large investments. The planning and financing of such investments by global policy makers or global energy firms require, in turn, reliable measures of associated global spread and their evolution in time, at least from the point of view of the principles for responsible investment (PRI). In this paper, our main contribution is the introduction of index measures for accessing global spread (that is, measures of inequality or inhomogeneity in the statistical distribution of a related quantity of interest) of technology efficiency and CO2 emission in primary energy consumption. These indexes are based on the Gini index, as used in economical sciences, and generalized entropy measures. Regarding primary energy sources, we consider petroleum, coal, natural gas, and non-fossil fuels. Between our findings, we attest some stable relations in the evolution of global spreads of technology efficiency and CO2 emission and a positive relation between changes in global spread of technology efficiency and use of non-fossil fuel.

Understanding corporate debt from the oil market perspective.

We design and test the hypothesis that for energy firms' oil market activities impact capital structure. Using a unique sample of 726 energy firms from 56 countries, we find that oil market activities do influence capital structure. The speed of adjustment (SOA) to leverage when not exposed to oil market activities is between 27.5 and 66.4%. When exposed to oil price growth (market liquidity) the corresponding SOA is between 51.1 and 72.4% (40.9–76.1%). We conclude that oil price growth slows down while market liquidity improves SOA to leverage for energy firms. By comparison, using a sample of over 32,000 non-energy firms from 108 countries, we find no evidence that oil market activities dictate capital structure.

Assessing the Impact of the COVID-19 Pandemic on the Greek Energy Firms: An Event Study Analysis

This study examines the impact of the COVID-19 pandemic on the stock returns of 11 Greek energy listed companies. Using an event study approach covering a window of 10 days before and 10 days after the general lockdown (23/3/2020), we show that the pandemic influenced returns of the majority of the listed energy firms. However, diverging from the event day sees the negative effects dissipating.

Fracking, farming, and water

Several studies note the large quantity of water used to hydraulically fracture oil and gas wells. We quantify this water use and its effects on water use for irrigating crops. For nine western states in 2017, water use in fracking represented 1.7 percent of water use in irrigation overall, but up to 55 percent in the Bakken shale of North Dakota, 28 percent in Oklahoma shale regions, and 12 percent in the Eagle Ford shale of Texas. However, in counties where the percentage of water use for fracking relative to irrigation is large, it is primarily because such counties have had minimal historical irrigation. We analyze the effect of state water policies governing the transfer of water from farming to fracking on water withdrawals for the two sectors. In North Dakota, which allowed farmers to forego irrigating and sell water to energy firms, each acre-foot of water used in fracking displaced about 1.1 acre feet from irrigation, thereby avoiding an increase in total withdrawals. Weaker evidence suggests an increase in irrigation in Oklahoma and Texas. Because of the lack of displacement in Texas and Oklahoma, concerns that fracking contributes to excess withdrawals in the present time may be warranted.

Employee incentives and energy firms’ innovation: Evidence from China

This study investigates the effects of non-executive employee stock ownership plans (ESOPs) on energy firms’ innovation. Based on 248 Chinese energy companies covered by the State Intellectual Property Office (SIPO) database from 2006 to 2018, we document that non-executive ESOPs have a significantly positive impact on the number of patents applied by energy companies. To alleviate the endogeneity concerns, we adopt the two-way fixed effects model, the system generalized method of moments (SYS-GMM), and the instrumental variable approach to identify the causal relationship. Furthermore, our analysis reveals that non-executive ESOPs foster patent applications through risk-taking incentives implied by options, rather than the performance-based incentives. In addition, the positive effect is particularly pronounced in non-state-owned enterprises, companies with higher R&D intensity, and companies with less free-riding. Our results highlight the importance of rank-and-file employee incentives for the technological innovation of Chinese energy companies, and provide clear policy implications to manages and regulators to design appropriate incentive schemes for employees to promote corporate innovation.

Dow Jones Sustainability Indices, Do They Make a Difference? The U.S. and the European Union Companies

Sustainability and corporate social responsibility (CSR) strategies of companies delineate the health and the welfare of the communities across the globe. The two major goals of this study are (1) To explore the relationship between the environmental regulations, market value, and adoption of sustainability and CSR strategies of the publicly traded firms listed on the Dow Jones Sustainability Indices (DJSI) and (2) To examine the impact of being added to or deleted from DJSI per different market sectors for the firms in the U.S. and the European Union (EU). The selected starting window, the year 2015, for studying the impact of addition to or deletion from the DJS indices was the Paris Accord proposal by the EU and strict sustainability regulations of the EU versus the U.S. We used event study methodology and regression analyses to explain the cumulative abnormal returns utilizing firms’ characteristics and specific market sectors. In addition, the other focus of the study was on heavy (polluting) industries and investigating if the addition to or deletion of the firms in these industries from the sustainability indices had an impact on the market value. The findings of this study reveal no impact of the environmental rules and regulations on adopting sustainability and CSR strategies by either the EU or the U.S. firms. The novel findings of this study indicate a significant negative impact on the market value of firms in heavy industries, Energy, Basic Materials, and Utilities when added to the DJS indices. The study discusses the underlying reasons for these differences and proposes strategies to enhance the impact of addition to or deletion from the DISI to increase firms’ commitments to sustainability and CSR strategies and altering the attitudes of the investors.

Dynamic capital structure under changing market conditions in the oil industry: An empirical investigation

We study dynamics of capital structure in the oil sector, which has witnessed dramatic changes in the market conditions, such as significant changes in the price of oil, crucial reforms in legislation, and reduced access to credit over the last decade. Our analysis is focused on testing the main predictions of the tradeoff, pecking order, and market conditions models under a changing market environment. Our main contribution is to incorporate firms' heterogeneities related to indebtedness levels, share issues, long-term and short-term indebtedness within the capital structure analysis through the use of quantile regression as well as considering time dynamics. We identify general patterns in the sector, such as a preference in the oil industry for financing changes in investment through the issuance of new debt (mostly long-term debt). Generally, we find a changing capital structure across time and firms’ indebtedness characteristics. For example, oil firms with relatively high growth rates of new debt issuance are much more sensitive to changes in investment than firms with relatively lower rates of new debt issuance in a given year. Our results stress the importance of considering both time and cross-sectional asymmetries when explaining funding mechanisms adopted by a firm. Our study emphasizes the importance of time-varying aggregate factors on capital structure choices made by energy firms and therefore highlights the importance of policies that impact funding available for energy firms, independently of the idiosyncrasies that characterize their capital structure decisions. It also shed light on the importance of policies such as the establishment of anticyclical capital buffers in the energy industry.

Entrepreneurial Pivoting: New Perspectives and Paths Forward

This symposium explores the emerging phenomenon of entrepreneurial pivoting. Whereas pivoting is widespread among entrepreneurs and the business press, scholars are only starting to devote attention to it, leading to limited understanding about this important phenomenon. This symposium intends to shed light on pivoting to enable rigorous theorizing of this fundamental process. To this end, the Symposium brings together leading scholars who will reflect on pivoting from different perspectives (identity, strategic change, framing, strategic reorientation, and dynamic adaptation) and explore its implications for key organizational domains (technology ventures, cleantech and energy firms, social enterprise). The Symposium intends to spur research on this important phenomenon by offering multiple perspectives on it and identifying research opportunities. Containing an introduction to pivoting, insights from panelists, discussant comments, and a Q&A, this Symposium intends to provide participants with an understanding of the phenomenon, key theoretical approaches to it, and fruitful perspectives for future research.

Extreme Stock Market Performers, Part II: Do Technology Stocks Dominate?

This study reports on decade-horizon outcomes for investors in U.S. common stocks since 1950. Despite the stellar performance of investments in firms such as Apple, Amazon, and Microsoft, Technology stocks as a group are more likely to appear on a list of the worst rather than best performers. Telecommunications, Healthcare/Pharmaceutical, and Energy firms are disproportionately represented among those with the best decade-horizon stock returns, though Telecommunications stocks are also more likely to appear among the investments with the worst decade-horizon stock returns.

Firm performance and diversification in the energy sector

PurposeThe study aims to fill a gap in the literature on the economic impact of industrial and international diversification on firm performance in the energy sector. Li et al. (2016) investigate firms listed in China, and this study analyzes firms listed in (Western) Europe.Design/methodology/approachA sample of 129 energy firms is extracted from Datastream and covers the period from January 2009 to December 2015. Univariate and multivariate regression analyses are used to determine a plausible relation of diversification on corporate performance. Also, the difference between renewable energy firms and conventional energy firms is explored.FindingsA univariate analysis using both return on assets andTobin's Qas a variable shows that renewable energy firms have a higher profitability than conventional energy firms. However, a multivariate analysis does not confirm this result. The authors also document a negative relation between diversification strategies and firm performance.Research limitations/implicationsThe study uses main industry codes. Yet, one might make a distinction between renewable energy and conventional energy amounts with corporations. Also, the authors cover financial crisis years. Researchers might take into account more recent years.Practical implicationsThe findings of the study highlight the importance of short-term and long-term considerations for practitioners related to demand, the energy mix, oil prices and firm strategies.Originality/valueThe authors contribute to the debate and the literature when identifying similarities and differences between conventional energy firms and renewable energy firms in their application of diversification strategies and their (relation to) firm performance.

The Role of Natural Gas in Achieving Sustainable Development Goals by 2030

Over the years, the world has been drawn to the continuous damage of the Ozone layer brought about by global warming which has created awareness of the issue of climate change. There has been the need of policymakers, industry stakeholders, and government of various countries to dialogue through finding out better ways with the aid of research and development where energy resources can be fully exploited without having to worry about the harmful effects this resource will pose to the environment. The global world led by the European Union is already phasing out from the use of fossil fuels that emanate chlorofluorocarbons being the number one contributor to greenhouse gases. That is why governments and energy firms are investing in the creation of environmentally safe technologies that require the use of natural gas and renewable energy to function. This can be in the form of solar, wind, hydro, biofuel, etc. however, natural gas unlike carbon-based fuels is a very energy-efficient source of power for industries because it emits little to zero emissions from its usage. Though it's a major contributor to methane pollution in the environment. Such a disadvantage can be handled through the introduction of sustainable techniques and technologies. However, over the years natural gas has been viewed by policymakers in a negative light because it is considered to be too expensive, political, not green enough, and not the needed solution to our environmental crisis. While leaving out the fact that its usage has helped better the air quality of various countries, whom in the past have been victims of poor air quality in their regions due to the continuous usage of carbon fuels. Through energy companies or so-called multi-million dollars Oil and Gas corporations and national energy firms, the natural gas resource can be explored, produced and marketed to acquire financial resources of which a certain percentage can be used to establish NGOs, who can partner with existing NGOs which will fund projects or initiatives to ensure the sustainable development goals come 2030 can be fully realized for the healthy, continuous existence of the environment and human race for many years to come.

Regional and copula estimation effects on EU and US energy equity portfolios

ABSTRACT The aim of this paper is to investigate the regional interdependence structure of energy equities in the US and in the EU. Based on weekly stock prices of 28 big energy firms in the two regions from 2008 to 2019, we compare the efficiency of using bivariate or multivariate copulas to describe the dependence structure of energy equities. Furthermore, we investigate the impact of the choice between these two methods on the performance of energy equity portfolios. Our empirical results show that multivariate copulas, such as C-Vine, allow to better describe the dependence structure of energy equities. We also find that there is a stronger and more complex dependence structure among EU energy equities than among US energy equities. Our scenario analysis also shows that the dependence structure is stronger during the GFC while being weaker during the ESDC. More importantly, the correlation matrix obtained from the multivariate copula method allows to obtain optimal mean-CVaR portfolios with a higher performance than that from the bivariate copula method. More importantly, optimal portfolios constituted with multivariate copulas allow to reduce the portfolio’s sensitivity to oil prices.

Board attributes, CSR engagement, and corporate performance: What is the nexus in the energy sector?

This study provides empirical evidence on the association between board attributes and corporate social responsibility (CSR) engagement—as well as between CSR engagement and corporate performance—in the global energy sector. The data for the period of 2011–2018 was obtained from Thomson Reuters. The results indicate that board diligence and CSR committees are robust drivers of CSR performance, as proxied by the composite environmental, social, and governance (ESG) score along with its three individual indicators. While board independence is more influential in boosting the aggregate ESG score and the governance indicator, the board's gender diversity is more influential in environmental and governance indicators. However, higher CSR performance does not guarantee higher financial performance—as proxied by both market and accounting performance. We provide theoretical and practical implications, to guide regulators and energy firms in ensuring the sustainable development of the sector.

Smart energy driven business model innovation: An analysis of existing business models and implications for business model change in the energy sector

The Internet of Things in the energy sector manifests itself in the form of smart energy technologies that bring forth new smart energy business models (BMs). This technological progress alongside with decentralization of renewable energy production, market liberalization, and changing customer demands is making it difficult for organizations to keep up with the changing nature of the energy industry. Traditional energy utilities are challenged by the emerging smart energy BMs as the latter can replace established business operations. This is especially true for the customer segment of private households, which has become a focus of BM innovation in recent years. To address the challenge of low market transparency and the dynamics of technology-induced BM change, we analyze the BMs of 175 energy firms addressing the end consumer market by using a static (i.e., deriving BM representations) and dynamic BM lens (i.e., analysis of BM changes). We identify eight smart energy BM representations in form of BM archetypes. The findings are set in relation to a theoretical understanding of BM change revealing a hesitancy of traditional utilities to revise their BMs. Instead, the energy utilities prefer to build on BM extensions by outsourcing the innovation activities in subsidiaries or by using partnerships. The BM archetypes together with the BM changes provide an overview of the current smart energy market for private households and can serve as a starting point for BM innovation especially for energy utilities.

SOCIAL AND ENVIRONMENTAL CONTRIBUTIONS, BOARD SIZE AND CASH HOLDING: THE CASE OF ENERGY FIRMS

The level of cash holding has important impact on firm operations, which maintains the desire to study the determinants of cash holding to the benefits of the firm. This study seeks to examine the individual effect of corporate social responsibility (CSR), i.e. activities to protect environmental, social, customer and labor well-being, and board size on cash holding, as well as their interaction on this factor for a sample of listed energy firms in Vietnam. Our results show that CSR and board size both negatively affect cash holdings, implying that these two factors act as effective mechanisms to curtail excessive cash holding, which may harm firm performance as suggested under agency theory. An interesting finding from our research is that if both CSR and board size are negatively related to cash holdings, the interaction of these two factors is positively related to cash holdings. An implication from this finding is that firms with proper governance characteristics could pay less attention to agency cost and information asymmetry, and in fact show more concern about precautionary motives when it comes to cash holding decisions.

Magnitude and persistence of extreme risk spillovers in the global energy market: A high-dimensional left-tail interdependence perspective

This paper studies the magnitude and persistence of extreme risk spillovers among stock returns of 124 energy companies worldwide between January 2006 and June 2019, as well as the corresponding firm-specific determinants of firms' extreme risk spillovers. The high-dimensional nonparametric method, the coefficient of tail interdependence (CTI), enables us to make better use of available information and to evaluate risk spillovers more precisely. Moreover, we use spatial panel models that consider spatial heterogeneity among firms to explore the determinants of the risk spillovers. The empirical findings from a study of energy firms' risk spillover effects verify the necessity of persistence measurement. Also, the most systemically risky energy companies do not necessarily have the largest firm sizes, while some relatively small firms can also generate high risk spillovers, which indicates that determinants other than firm size could also affect the spillover effect, such as business complexity and geographic location. Our regression results suggest that the extreme risk spillover of the energy companies is quite different in terms of business and region, which deserves more attention with respect to energy risk management. The estimates can be used for making portfolio decisions and designing regulatory policies.

Analysis of the ways of improvement of Ukraine – NATO cooperation on cybersecurity issues

Recent events in Ukraine have shown that, along with the advancement of information technology, methods of conducting modern warfare are being enhanced. Cyberspace is deliberately used by the Russian Federation to commit cyber warfare against Ukraine. Therefore, in order to address their influence effectively, it is important not only successfully deal with its consequences but also to foresee the potential adversaryʼs actions by analyzing their previous operations and incorporating the lessons learned by other countries.
 Across the globe, including Ukraine, the issue of information security and cyberattacks has become exceedingly urgent. Everybody is aware of the ongoing attacks on information networks of various government agencies and energy firms, cyberattacks on e-mail networks of political parties and organizations around the world. Likewise, despite the steadily growing numbers, cyberattack cases against the individuals and private businesses are not reported as widely as they occur.
 As a result, The North Atlantic Alliance countries began tackling the issue of cyberthreats much earlier than Ukraine. Consequently, NATO and its allies rely on powerful and robust cyber defenses to ensure the Alliance's core tasks of collective defense.
 The article discusses methods and strategies for providing cyber defense in NATO member states and recommends ways to increase the level of protection in the state's cyber space, as part of Ukraineʼs national security and defense domain.

The curious case of Canadian corporate emissions valuation

This study examines the relevance to investors of the greenhouse gas (GHG) emissions of publicly-traded Canadian firms over 2006–2018. Based on two independent datasets, we document that firm value varies positively in the level of emissions. This result suggests that the Canadian setting differs from those studied previously, notably because of low climate litigation risk and national and subnational expenditure policies to offset climate impacts on the economy. While national and subnational expenditures to mitigate emissions affect firms' on-balance-sheet costs and profits, investors price the future payoffs to these expenditures into firm value. Supporting this view, we find that the positive relation between emissions and firm value in Canada is amplified for high GHG-intensity firms (mainly energy firms in Alberta), whose future payoffs to environmental policies and spending exceed those of low GHG-intensity firms. Our results are consistent with investors’ recognition of the benefits to firm value of national and subnational policies to decarbonize the Canadian economy.

Environmental policies, national culture, and stock price crash risk: Evidence from renewable energy firms

AbstractThis study investigates the impact of country‐level environmental performance and national culture on the stock price crash risk of renewable energy firms. Employing a large sample of 626 renewable energy firms across 31 countries, we find a significant nonlinear relationship between country‐level environmental performance and crash risk. National culture dimensions are found to strongly predict the crash risk of renewable energy firms, particularly after the global financial crisis. On the contrary, national culture dimensions and environmental policies are observed to not exert any significance in explaining the crash risk of fossil fuel firms. Our results are robust with respect to alternative measures of stock price crash risk and the endogeneity of national culture dimensions. Overall, the findings of this paper contribute to the environmental economics literature by providing new evidence regarding the role of societal and environmental factors in explaining the stock price crash risk of energy firms.