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Market Perceptions of Reserves Disclosures Under SFAS No.69
... However, our knowledge of the impact of less mature reserves on market valuation is limited. Studies on the impact of changes in reserves on shareholder returns use either proved reserves amounts (Boyer & Filion, 2007;Clinch & Magliolo, 1992;Misund, 2015a;Misund, Asche, & Osmundsen, 2008;Misund, Osmundsen, & Sikveland, 2015;Spear, 1994) or proved reserves values (Alciatore, 1993;Bryant, 2003;Doran, Collins, & Dhaliwal, 1988;Spear, 1996;Teall, 1992). Very few studies focus on the relative importance of different types of reserves classifications or reserve maturity. ...
... Other studies address the information content of the supplementary information oil and gas companies are required to disclose. This strand of the literature examines the relationship between market returns and disclosure of changes in both reserves amounts (Clinch & Magliolo, 1992;Harris & Ohlson, 1987;Spear, 1994) and reserves values (Alciatore, 1993;Doran et al., 1988;Kennedy & Hyon, 1992;Spear, 1996). 7 However, the results are mixed. ...
... A few studies have also examined the association of reserve quantities with oil company returns. Clinch and Magliolo (1992) found that changes in reserves due to production dominated all other reserve information. Moreover, Spear (1994) found that the individual components of reserve amounts changes (such as discoveries, production, purchases) improved the relationship with returns. ...
Oil and gas reserves are the most important assets of oil and gas companies. A source of confusion for investors in oil companies, is that reserves quantities and values are uncertain estimates. Reserves are typically classified according to probabilities of recovery from underground reservoirs. All US-listed companies are required to disclose proved reserves but not probable reserves, thus leaving out potentially important information for investors and financial analysts. This study addresses the impact on market valuation of various classifications of reserves amounts. Using a data sample of 94 companies that do disclose information on probable reserves, we compare the relation between three classifications of reserves and oil company returns. While we find that information on probable reserves do not have an impact on stock returns measured over the entire time period, this is not the case since 2009, coinciding with the onset of the shale gas revolution.
... Spear (1994) uses an event study methodology and concludes that the reserve quantity disclosures do not provide value-relevant information. Relatedly, Clinch and Magliolo (1992) argue that the mandatory DCF disclosures are subject to estimation error because reserve estimates are unreliable. Adams et al. (1994) criticize the ASC 932 disclosures because (1) estimates of future cash flows are based on current oil and gas prices rather than expected future oil and gas prices, and (2) the required uniform discount rate of 10 percent is inconsistent with Statement of Financial Accounting Concepts (SFAC) No. 7, which advocates time-and firm-specific discount rates. ...
... A third potential source of measurement error in ASC 932 disclosures is estimation error in proved reserve quantity estimates. Prior studies in the oil and gas industry conclude that disclosed reserve quantities can be noisy due to estimation error or purposeful manipulation (e.g., Clinch and Magliolo 1992;Hall and Stammerjohan 1997). To examine the impact of revisions in proved reserve quantity estimates, we hand-collect information from the notes to the financial statements about the subsequent change in the annual DCF estimate that is attributable to revisions in proved reserve quantity estimates, denoted CHEST tþ1 . ...
... SeeBoone (2002) for a review of research on oil and gas firms. Research finding weak and inconsistent evidence on the value relevance of ASC 932 disclosures includesMagliolo (1986),Harris and Ohlson (1987),Doran, Collins, and Dhaliwal (1988),Alciatore (1993),Shaw and Wier (1993),Spear (1994),Clinch and Magliolo (1992), andBoone (2002). ...
We identify a setting in which firms are required to disclose discounted cash flow (DCF) estimates relating to the value of their primary assets. ASC 932 (formerly SFAS No. 69) has mandated DCF disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a hand-collected sample of oil and gas royalty trusts, we find that (1) the mandatory DCF disclosures are incrementally value-relevant over historical cost accounting variables, (2) investors misprice royalty trust units because they underweight the disclosed DCF estimates when forecasting future distributions, and (3) media articles bringing attention to discrepancies between price and the disclosed DCF estimates are significant stock price catalysts. While our evidence indicates that mandatory DCF disclosures can be incrementally useful for security valuation, it also indicates that investors may overlook such information, potentially due to lack of attention and accounting expertise.
Data Availability: Data are publicly available from sources indicated in the text.
... Spear (1994) uses an event study methodology and concludes that the reserve quantity disclosures do not provide value-relevant information. Relatedly, Clinch and Magliolo (1992) argue that the mandatory DCF disclosures are subject to estimation error because reserve estimates are unreliable. Adams et al. (1994) criticize the ASC 932 disclosures because (1) estimates of future cash flows are based on current oil and gas prices rather than expected future oil and gas prices, and (2) the required uniform discount rate of 10 percent is inconsistent with Statement of Financial Accounting Concepts (SFAC) No. 7, which advocates time-and firm-specific discount rates. ...
... A third potential source of measurement error in ASC 932 disclosures is estimation error in proved reserve quantity estimates. Prior studies in the oil and gas industry conclude that disclosed reserve quantities can be noisy due to estimation error or purposeful manipulation (e.g., Clinch and Magliolo 1992;Hall and Stammerjohan 1997). To examine the impact of revisions in proved reserve quantity estimates, we hand-collect information from the notes to the financial statements about the subsequent change in the annual DCF estimate that is attributable to revisions in proved reserve quantity estimates, denoted CHEST tþ1 . ...
... SeeBoone (2002) for a review of research on oil and gas firms. Research finding weak and inconsistent evidence on the value relevance of ASC 932 disclosures includesMagliolo (1986),Harris and Ohlson (1987),Doran, Collins, and Dhaliwal (1988),Alciatore (1993),Shaw and Wier (1993),Spear (1994),Clinch and Magliolo (1992), andBoone (2002). ...
We identify a unique setting in which a sample of firms are required to disclose discounted free cash flow (DCF) valuations for their own equity. ASC 932 (formerly SFAS No. 69) has mandated DCF valuation disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a comprehensive sample of these royalty trusts, we find that (i) mandatory DCF disclosures are incrementally value relevant over historical cost accounting variables; (ii) stock prices initially underreact to information in the DCF disclosures; and (iii) media articles bringing attention to discrepancies between price and the DCF disclosures are significant catalysts for stock price correction.
... 12,13 Subsequent studies examining the informational content of reserve disclosures report conflicting results on the informational value of these disclosures to users of financial statements. While, Doran et al. (1988) and Kennedy and Hyon (1992) document that reserve disclosures provide value-relevant information after controlling for historical cost earnings, Dharan (1984), Magliolo (1986), Harris and Ohlson (1987), and Clinch and Magliolo (1992) find limited evidence of incremental information content of the aggregate reserve disclosures. For example, Dharan (1984) observes that about 94% of the reported variation in reserve estimates could be explained by publicly available information implying limited incremental informational value of RRA disclosures. ...
... A potential explanation for the conflicting evidence on the information content of reserve disclosures is that estimates of reserve quantities are imprecise since the ability of a company to successfully develop its reserves depends on a number of economic factors, such as the country where the reserves are located and the expected timing of the extraction (Spear, 1994). Indeed, Clinch and Magliolo (1992) document that the disclosure of proved reserve quantity is informative for a subset of companies that 11 The main criticisms were related to the subjectivity of estimating the quantity of proved reserves and the assumptions related to production and financial factors. 12 The original RRA under ASR No. 253 required disclosure of reserve value and RRA earnings and cash flows in the primary financial statements, whereas SFAS No. 69 required reporting of reserve estimates only as a supplementary disclosure or in the footnotes. ...
... They say that these findings support SFAS No. 69's requirement for supplementary reserve disclosures. Clinch and Magliolo (1992) report that proved reserves, by themselves, are not value-relevant after controlling for firms' current production levels, but proved reserves become value-relevant after introducing an interaction term that proxies for the uncertainty associated with reserve estimates. 9 This finding suggests that investors place lower valuation multiples on less precise reserve disclosures. ...
... He finds that the net change in reserve quantity is not associated with security returns during the 10-K release week; but disaggregating the net change in reserve quantity into its components (i.e., net changes in production, discoveries, and purchases) conveys additional information. This positive association between the abnormal stock returns and the net change in reserve discoveries is insensitive to the uncertainty proxies used in Clinch and Magliolo (1992). This finding suggests that investors use other information to assess the quality of oil and gas reserve estimates and that the frequency and magnitude of oil and gas reserve revisions is not a good proxy for the reliability of oil and gas reserve disclosures. ...
We examine the association between corporate governance measures and the value relevance of companies' oil and gas reserve disclosures. In 2003, the Ontario Securities Commission's National Policy Instrument 51-101 mandated stronger baseline governance measures relating to the estimation and disclosure of reserves. For oil and gas companies listed on the Toronto Stock Exchange, we find that investors assign higher pricing multiples to reserve estimates after than before implementation of this new measure. We also find that the new regulatory framework spawns significantly greater increases in valuation multiples associated with companies' voluntary adoption of stronger governance measures such as separation of CEO/Board-Chair roles and the establishment of a reserves committee of the Board. In contrast to previous studies, we find that the disclosure of probable reserve estimates provides value relevant information beyond that provided by proved reserve estimates, particularly for firms with stronger governance after implementation. We conclude that equity market participants see both proved and probable reserve estimates as being value relevant provided they can infer the credibility or precision of the estimates from companies' disclosed governance policies and procedures.
... Aussi, les bénéfices futurs qui leur sont associés sont plus incertains. (Berry & Wright, 2001 ;Clinch et Magliolo, 1992 ;Coleman, 2005 ;Harris et Ohlson, 1987 ;Martinez, 2004 ;Ghicas et Pastena, 1989 ;Teall, 1992) et nous avons testé des modes de standardisation alternatifs : 1) par la valeur comptable, comme Alciatore (1993), Chung, et al. (1993), Doran et al. (1988) ou Spear (1994), et 2) par les réserves prouvées comme Magliolo (1986). Nos résultats confirment ceux de Barth et Clinch (2009), les standardisations par la valeur comptable, la valeur de marché ou les prix antérieurs sont les plus grandes sources de biais. ...
Alors qu’ils cherchaient à définir une norme spécifique aux activités extractives, de nombreux normalisateurs comptables ont tenté de répondre à la question suivante : quelle estimation des perspectives de croissance future est utile aux investisseurs en complément des informations issues du bilan et du compte de résultat ? Notre étude emploie le modèle d’Ohlson (1995) sur un échantillon de 52 entreprises cotées pendant une période de 11 ans (1996-2006) et examine la pertinence informationnelle de quatre vecteurs orientés vers le futur : la valeur optionnelle des réserves de pétrole, les flux de trésorerie disponibles, les capex et la volatilité du prix du pétrole brut. Nos résultats suggèrent qu’une valeur heuristique des réserves considérées comme une option réelle sur un volume de pétrole découvert est la plus informative et la moins redondante des valeurs prospectives testées. Ils remettent en cause l’utilité de la communication de résultats futurs sous forme d’estimations ponctuelles.
... Nevertheless, standard setters' initial commitment to fair or present value disclosures may have indicated a presumption that there is valuerelevant information in such disclosures. Clinch and Magliolo (1992) and Boone (2002) argue that measurement error arising from the unreliability of the underlying reserve quantity estimates and the assumptions of the SFAS 69 standardised measure for determining O&G present value might explain the weak association of the measure with share prices. They also put forward possible misspecification of the valuation models for determining present value and for testing its association with share prices or returns as an additional reason for the anomaly. ...
PETROLEUM ACCOUNTING AND FINANCIAL MANAGEMENT JOURNAL VOL. 29 NO. 1
This paper revisits the historical cost versus present value measures/value-relevance controversy: a consideration of whether historical cost and present value disclosures provide comparable decision-useful information.
... Despite findings by Clinch and Magliolo (1992) that reserves up to three years in the future are associated with ruling oil price sensitivities, it is not possible from current SEC O&G financial reporting to assess the potential effect of oil price variability on future SEC proven reserves and production entitlement. In other words the quantity of underlying PSC oil and gas assets for corporates are themselves a function of oil price levels and current disclosures provide no way of measuring this effect. ...
... They found that investors discounted reported accounting values of regulatory assets according to appraisals of the regulatory environment. Other studies (Clinch and Magliolo (1992) and Khurana and Loudder (1994)) support this finding. These studies are examining periods of general regulatory stability. ...
For over eighty years the vertically integrated suppliers of electricity in the United States have been assigned exclusive
territorial (consumer) franchises and closely regulated. Both the legal monopolies and the rigid rate-base regulation of utilities
seem about to end. Three states in 1996 enacted laws to deregulate electricity, permitting retail consumers to choose among
power suppliers, and most were closely studying deregulation. From 1992–1995, the period of this study, expectations about
the structure of the future electricity marketplace were in flux. This paper examines the proposition: Did investors during
this period act as if a substantial deregulation was imminent and damaging to the future profitability of utilities? It also
explores the relationships between key explanatory variables and market value of investor-owned utilities. The paper then
tests how utilities’ spending in one highly regulated area — conservation programs known as demand-side management (DSM) —
were influenced by changes in market structure and regulation.
... Thus, present value estimates of oil and gas asset fair values should exhibit less measurement error than fair value estimates of intangible assets and property and equipment that are not traded in established markets and that contain substantial firm-specific value. On the other hand, the SFAS No. 69 present value measure may be subject to severe measurement error because (1) reserve quantity estimates underlying the valuation disclosures may contain substantial error, and (2) the valuation model used to attach value to those reserve quantities may be flawed (Clinch and Magliolo 1992). Studies conclude that estimates of reserve quantities do contain substantial error. ...
This paper investigates three potential explanations for the puzzlingly weak value relevance of oil and gas asset present values documented in prior research: measurement error, model misspecification, and time-period idiosyncrasy. I operationally define the magnitude of measurement error as the measurement error variance, estimated using an errors-in-variables two-stage regression model similar to that used by Barth (1991) and Choi et al. (1997). I find that (1) measurement error in the present value measure of oil and gas assets is on average less than the measurement error in the historical cost asset measure; (2) oil and gas assets measured at present value explain significantly more across-firm and across-time variation in stock prices than oil and gas assets measured at historical cost; and (3) model misspecification partially accounts for the puzzlingly weak reported value relevance of the present value measure in prior research.
... In this study, we: (1) investigate whether equity prices reacted to the SBC pronouncements; (2) investigate whether abnormal returns varied cross-sectionally with firm-specific variables; and (3) assess the value relevance of recognition versus disclosure in financial reporting. The first two inquiries are similar to previous studies investigating the market reaction to various accounting pronouncements that required recognition (e.g., Espahbodi et al., 1991Espahbodi et al., , 1995 or disclosure of some information (e.g., Clinch and Magliolo, 1992;Espahbodi and Tehranian, 1989). They not only provide insight into the market's assessment of the relative importance of each event, they offer some rationale for lobbying efforts and concerns by Congress, the business community, and the accounting profession, that eventually forced the FASB not to require recognition of SBC costs. ...
This study examines the equity price reaction to the pronouncements related to accounting for stock-based compensation and assesses the value relevance of recognition versus disclosure in financial reporting. We document that firms exhibit significant abnormal returns around the issuance of the Exposure Drafts proposing to require recognition of stock-based compensation costs, and also around the event reversing that decision to require disclosure only (while encouraging recognition). We also document that the abnormal returns are most pronounced for high-tech, high-growth, and start-up firms. Our results are consistent with the contracting theory, and show that disclosure is not a substitute for recognition.
... This unsuccessful attempt by the FASB spawned a series of research studies on the 1 full cost versus successful efforts methods issue. Th ese studies have been well documented and commented upon (see Dyckman and Smith, 1979;Collins and Dent, 1979;Lev, 1979;Deakin, 1979, Collins et al., 1982, Doran et al., 1988Clinch and Magliolo, 1992;Alciatore, 1993;Bandyopadhyay, 1994;and Bryant 2003). One possible summary of the outcome of the research is that the extant research, on balance, supports the use of the SE method for producing market relevant information. ...
PETROLEUM ACCOUNTING AND FINANCIAL MANAGEMENT JOURNAL VOL. 25 NO. 3
This paper argues that comment letters in response to a recent proposed accounting standard were used by the extractive industry as lobbying tools. Specifically, a content analysis of responses received in respect of the IASC’s extractive industries issues paper reveals the greatest divergence of views on accounting treatments that have the highest potential for income management. This divergence appears to represent an attempt by lobbyists to ensure that income management strategies are not forfeited.
... Numerous studies show that the coherence between financial and non-financial information obtained from specific reports filed in financial reports is the more useful for investors in making good decisions in their middle-and long-term portfolio management. (Clinch & Magliolo (1992); Lajili & Zéghal (2005); Bryan (1997); Cole & Jones (2004)). ...
We aim at giving a general view of the context in which appears the latest accounting evolutions, linked with the actual financialization of the financial market. Isn’t there a risk that the new IFRS standards and their concern about transparency and comparability impoverish the information by giving to accounting, with the application of the right value, the function of capital fundamental evaluation? We also show the importance of non-financial information able to supplement the provision of information, which is useful for the economic players in order to take decisions, and described on the reworking of the financial information by the players led to use it.
Petrolün birçok sektör için önemli bir girdi unsuru olmasının yanı sıra, şirketlerin finansal performansını doğrudan etkileme gücü, yeni petrol rezervlerinin bulunmasının ve üretime aktarılmasının şirketlerin hisse senedi fiyatlarında bir değişikliğe yol açıp açmayacağı sorusunu akıllara getirmektedir. Etkin Piyasa Hipotezi, bir haberin kamuoyuna duyurulduktan sonra en fazla bir veya iki gün içinde bilginin fiyatlara tamamen yansıyacağını ileri sürmektedir. Bu husus aynı zamanda modern finansın da temel argümanlarından birisidir. Hisse senedi fiyatları, haberlere makul düzeyde ve hızlı tepki vermelidir. Bu çalışmanın amacı, Cumhurbaşkanı Recep Tayyip Erdoğan tarafından 2 Mayıs 2023 tarihinde kamuoyuyla paylaşılan Cudi Gabar'da yeni ve oldukça büyük miktarda verimli bir petrol rezervi bulunduğuna yönelik haberin, BİST ulaştırma ve depolama sektöründe faaliyet gösteren şirketlerin hisse senetlerine olan olası etkisini "olay çalışması (event study)" yöntemiyle analiz etmektir. Çalışmanın amacı kapsamında, ulaştırma ve depolama sektöründeki 9 şirketin haber öncesi-haber günü-haber sonrası anormal ve kümülatif anormal getirileri elde edilmiştir. Yeni petrol rezervi haberinin kamuoyuyla paylaşıldığı işlem günü, hisse senedi fiyatlarının istatistiksel olarak anlamlı biçimde değer kaybettiği, yatırımcıların olumlu habere başlangıçta olumsuz ve temkinli tepki gösterdiği, haberin hemen sonrasında ise hisse senetlerinin normal üstü getiri elde ettiği sonucuna ulaşılmıştır.
We exploit two regulatory shocks to examine the informational effects of tightening pre‐existing mandatory disclosure rules. Canadian National Instrument 51‐101 in 2003 and the United States rule “Modernization of Oil and Gas Reporting” in 2009 introduced quasi‐identical amendments which effectively tightened the rules governing oil and gas reserve disclosures in both countries. We document significant changes in firms’ reporting outcomes when the new regulations are introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid‐ask spreads. Our findings are robust to controlling for other confounding factors such as time trends, other information disclosed simultaneously, financial reporting incentives, mispricing and monitoring efforts.
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The question we address is whether mandated disclosure about dispersion of nonfinancial asset values can provide information relevant to assessing firm risk. Using a sample of Canadian oil and gas (O&G) firms between 2004 and 2011, we find that the difference between the disclosed 10th and 50th percentiles from the O&G reserves distribution, which measures dispersion of the distribution, is positively associated with future total and idiosyncratic equity return volatility, systematic risk, and credit risk. We also find that disclosure of increased reserves dispersion is associated with weaker stock price reactions to increases in reserves and with increases in bid-ask spreads, both of which indicate the disclosures convey information about risk associated with reserves. Additional tests reveal little evidence of managerial opportunism in the reserves disclosures. Taken together, our evidence suggests that quantitative disclosures about the dispersion of nonfinancial asset values can provide information relevant to assessing firm risk.
This paper examines how oil and gas companies’ reserves growth affects their share price returns. In particular we examine three issues affecting the relation between reserves changes and oil and gas firm returns. First, we examine if investors value reserves replacement as a result of exploration activities differently to reserves growth through acquisitions. In the second analysis, we test if reserves replacement of oil reserves impacts stock returns differently than changes in gas reserves do. Third, we examine the impact of the Shale gas revolution and the subsequent oil and gas price divergence on the association between returns and replacement of oil versus gas reserves. The results suggest that investors seem to be indifferent to reserves replacement strategy (exploration or acquisition). However, we find that changes in oil reserves impact oil and gas company returns differently than changes in gas reserves does. Moreover, we find that there has been a structural shift in the relation between returns and changes in gas reserves (but not changes in oil reserves) after 2008, coinciding with the Shale gas revolution and the break in the oil-gas price link. This latter result can be relevant for understanding the impact of the recent fall in oil prices on investor valuation of oil and gas reserves.
The accounting treatment of exploration expenditure in the extractive industry has historically been a challenging issue for regulators. This paper examines the accounting policies for, and value relevance of, the exploration assets of firms listed on the London Stock Exchange from the oil & gas and mining sectors. The policies used by oil & gas firms range from the relatively conservative Successful Efforts to the most aggressive Full Cost method, whereas mining firms employ a range of policies from the Successful Efforts to the most conservative Expense All method. The results suggest that the income statements of Main Market-listed extractive firms contain value relevant information regardless of the policy followed by the firm. There is no significant difference between the value relevance of exploration asset disclosures by Main Market-listed oil & gas firms following the Successful Efforts or Full Cost methods. For AIM-listed oil & gas companies only the Full Cost method provides value relevant information on exploration assets. In the mining sector, exploration-related asset disclosures are only value relevant for AIM-listed firms following the Expense All method. The results suggest that flexibility in accounting for exploration expenditure is necessary to facilitate the disclosure of value relevant accounting information.
This research investigated the relevance of information related to proven reserves of oil and accounting information (net income and book value) in the valuation of global oil companies. Regressions were applied considering the technique of Panel Data on a sample of 15 oil companies integrated and listed on the New York Stock Exchange (NYSE) during the period from 2001 to 2012, totaling 180 firms-year. Eight models were tested, each of them having the Naperian or natural logarithm (ln) of the average share price as dependent variable, considering the closing prices of November, December, January and February. Equity (PL), net income (LL), capitalized costs (CC), volume of gas and oil reserves (RPO&G), components of the change in reserve value, and discounted future cash flow (FCD) of the reserves were tested as independent variables. The results indicated that the market value of an oil company is a function of the PL variable and accounting information related to proven oil and gas reserves. This finding reinforces the idea that the accounting data are incomplete for determining the value of an oil company, and information related to proven oil and gas reserves contributes to increase the relevance of accounting variables measured at historical values. As a result, additional information in the notes on the oil reserves is relevant and necessary, besides traditional information already disclosed in the financial statements.
Keywords: oil and gas, value relevance, disclosure.
The uncertainty surrounding oil and gas reserves estimation and the cost of gathering reserves data discourage firms from disclosing sufficient data to satisfy SORP (statement of recommended practice) requirements, especially where oil and gas reserves disclosure is discretionary. However, the need to reduce agency cost and signal to stakeholders induces firms to disclose oil and gas reserves. The contrasting views on the rationale guiding the extent of disclosure were examined in this study. A sample was drawn from 83 United Kingdom (UK) oil and gas exploration and production companies listed on the London Stock Exchange. Appropriate statistical tools were used to investigate the extent of oil and gas reserves disclosure. The findings provide mixed results about the extent of disclosure to meet SORP's requirements. There was no particular evidence that UK oil and gas companies provide qualitatively acceptable oil and gas reserves quantity information. The observed varying degrees of disclosure in the market could be attributed to a discretionary regime that allows firms to determine how and when to disclose. Policy makers and industry regulators could find the results useful in assessing the current extent of disclosure compliance.
O presente trabalho teve como objetivo fornecer evidencias empiricas a questoes chaves do Discussion Paper Extractive Activities colocadas em discussao pelo International Accounting Standard Board e que tratam da norma contabil internacional aplicavel as empresas extrativistas. Trata-se de contribuicao efetiva da academia ao processo de regulacao contabil internacional. Para operacionalizar os estudos, utilizou-se a base de dados da Evaluate Energy®, empregando-se regressoes com dados em painel a diversos planos amostrais contendo informacoes de empresas petroliferas. Os resultados indicaram que o atual conjunto de informacoes baseado no custo historico e relevante para as decisoes economicas dos participantes do mercado de capitais. Assim, tem-se um cenario para se acreditar na manutencao do status quo vigente.
Economic and political events have led to utility regulation decisions which, in turn, provide an impetus for significant changes in industry accounting and reporting practices. The prospect of continuing change in the operating environment for utilities suggests that some deferred assets created by regulatory actions are subject to uncertain recovery. Accounting regulators have responded by imposing additional constraints on the firm's ability to record these so-called "regulatory assets." Our results indicate that investors' valuation of regulatory assets depends on the regulatory environment in which the utility is operating. That is, there are cross-sectional valuation differences arising from the market's assessment of the probability that regulators will ultimately allow for the full recovery of the deferred costs.
The purpose of this study is to examine the information content of the components of the annual change in the quantity of proved reserves reported by U.S oil and gas (O&G) producers. In particular, it investigates the contemporaneous association between the unexpected portions of discoveries, production, net purchases, and revisions of prior quantity estimates and unexpected security returns during the release week of the 1984 to 1988 annual reports or forms 10-K of these firms. The empirical results suggest that (1) disaggregating the net change in the quantity of proved reserves into its components conveys additional information beyond that contained in the net change in total proved reserves itself, (2) discoveries are highly associated with security returns even after controlling for production, and (3) revisions, net purchases, and production have a modest influence on security returns. The findings of this study are interpreted within the context of the economic environment of the O&G industry during the test period.
This study investigates the incremental information in alternative reserve-based value replacement measures over historical cost income of oil and gas (O&G) producing companies. The empirical results suggest that market participants react favourably to O&G companies that are successful in replacing their O&G reserves via discoveries. Whereas this market reaction is positive and significant for full cost (FG) companies that deal primarily in O&G exploration and production, it is insignificant for successful efforts (SE) companies. Furthermore, it appears that once production and discovery quantities are known, the reserve-based value disclosures convey little incremental information.
This paper examines the effects of hedging activities and executive compensation on firm value by incorporating the endogenous relationship between the two managerial decisions for a sample of U.S. oil and gas producers. Theories of hedging based on market imperfections imply that hedging should increase market value of firms. Likewise, the design of executive risk-incentive compensation is to align managerial interests with shareholders' interests to maximize firm value. However, hedging may reduce the volatility of the firm's cash flow, thereby reducing the value of executive risk-incentives compensation, and thus altering the managers' incentives in firm-value maximization. As a result, it is of interest to investigate whether the original firm value maximization objectives embedded in respective corporate decisions on hedging and structuring of CEO compensation can be passed on when both managerial decisions are jointly determined. To investigate these issues, we collect detailed information on the extent of hedging, executive compensation and the valuation of oil and gas reserves. Since hedging reduces the firm's stock price sensitivity to oil and gas prices, hedging policy may be affected by how managers are compensated. We show that hedging incentives and CEO's risk-taking incentives are significantly negatively correlated. To take into account the endogeneity between hedging and managerial risk-taking incentives, we use a simultaneous equations model to examine their impact on firm value. After controlling for firm characteristics and performance, we again find that hedging incentives and CEO's risk-taking incentives are significantly negatively correlated with each other. Furthermore, we show that firm value is negatively affected by managerial hedging incentives and risk-taking incentives, and significantly affected by the extent of hedging. The finding provides further explanations to the results of Jin and Jorion (2006) in which hedging effect is negative but insignificant on firm value.
In this study we use a sample of petroleum refining firms to examine whether earnings sensitivity measures are risk-relevant. Because actual earnings sensitivity measures as per the SEC's new market risk disclosure rules are either unavailable, incomplete or cross-sectionally uncomparable at the present time, we construct earnings sensitivity measures from extant information from historical financial statements. Our findings indicate that such simulated earnings sensitivity measures are positively associated with contemporaneous stock market determined oil exposures (oil betas). We also find that simulated earnings sensitivity measures are useful in predicting future oil betas after controlling for past oil betas and a number of alternate risk proxies. Our evidence suggests that earnings sensitivity measures provide risk-relevant information.
The paper provides early evidence on the informativeness of commodity price risk measures required by the Securities and Exchange Commission's new market risk disclosure rules (SEC 1997). I use existing disclosures of oil and gas producers (O&G) to obtain proxies for the tabular and sensitivity analysis disclosures required by the new SEC rules. I find that proxies for the tabular and the sensitivity analysis format are significantly associated with O&G firms' stock return sensitivities to oil and gas price movements. This finding casts doubt on claims that the new market risk disclosures do not reflect firms' risk exposures. The proxies for the tabular format and sensitivity format disclosures are not substitutable explanations of firms' risk exposures. This evidence suggests that disclosures from one disclosure format are not comparable to those from the other reporting format.
The AICPA Special Committee on Financial Reporting has urged disclosure of relevant forward-looking information on risks and opportunities to supplement conventional financial statements. We conduct a laboratory market experiment to assess the effects of such disclosures on capital allocation decisions. We develop two sets of competing hypotheses regarding how capital markets react to supplemental disclosures. One set is based on the assumption of semi-strong market efficiency, while the other posits that the bounded rationality of individual traders leads to inefficient market prices. We find that explicit disclosure of management’s best estimate of an uncertain quantity improves market efficiency, even though this disclosure is redundant with information in financial statements. Second, we find disclosure of an upper bound of management’s estimate has the potential to bias security prices upward, while informationally equivalent disclosure of both upper and lower bounds removes this bias. These results suggest that experimental market reactions to these supplemental disclosures are inconsistent with market efficiency. Supplemental analyses of individuals’ price predictions and trading behavior support our conclusion that inefficiencies are at least partially attributable to individual information processing biases.
My paper presents empirical evidence to suggest that the initial disclosure of the discounted present value of oil and gas reserves, mandated by the United States Securities and Exchange Commission (SEC) in Accounting Series Release No. 253 (ASR 253) (SEC, 1978) was associated with a decline in the bid-ask spread of disclosing firms' common stock that appears to have persisted for the twelve month period following the initial reserve disclosures. This finding is important because it implies that ASR 253 equalized access to information across classes of investors, thereby enhancing the equality of opportunity in financial markets. The objective of decreasing information asymmetry and increasing equality of opportunity in financial markets is an operational criterion for disclosure regulation which also provides accounting researchers with a means to study the effectiveness of accounting policy. The results of this study suggest that ASR 253 (SEC, 1978) constituted effective public policy because it helped mitigate information asymmetry. The question of whether or not firms should be required to disclose value-based measures of assets and liabilities is important and timely because regulators appear to be moving toward a policy of expanding fair value disclosures.
There are two methods to combine oil and gas reserve quantities and values, an energy-based conversion method and a revenue-based conversion method. Prior academic research on the valuation of reserve quantities has used the energy-based conversion method, but he validity of the energy-based conversion has been questioned in the accounting literature (Lys, 1986; Koester, 1993). The purpose of this study was to examine whether total proven reserves calculated using a revenue-based conversion method was more value-relevant than total proven reserves calculated using an energy-based conversion method. The research hypothesis was tested with two methods, each using a pooled, cross-sectional (panel data) sample of 399 film-years from the Arthur Andersen Oil and Gas Reserve Disclosure Database 1989–1993. The empirical results provided no support for the hypothesis that a revenue-based conversion method was superior to an evergy-based conversion method for valuation purposes.
Market risk exposures of balance sheet asset values are becoming an increasingly important accounting issue. In oil and gas, oilfield exposures to oil prices are specific and contractual, presenting a contingency problem for investors, financial analysts, standard setting bodies and government agencies. Our paper uses an extensive sample of 292 oilfields to provide evidence that the US Securities and Exchange Commission (SEC) supplementary disclosures do not capture the price sensitivities of oil and gas disclosures implicit in the two main forms of oilfield ownership, concession and production sharing contracts (PSCs). Current asset disclosures neither distinguish between global variations in oilfield ownership terms, nor on market risk implications for the value of oilfield assets.Importantly, we show that unlike concessions, reserve and production disclosures vary in response to oil price movements for PSC regimes. Our results highlight the need to differentiate PSC disclosures from concession fields, and to fully reflect price risks implicit in oilfield ownership contracts. We extend findings by Rajgopal [1999. Early evidence on the informativeness of the SEC's market risk disclosures: the case of commodity price risk exposure of oil and gas producers. The Accounting Review 74, 251–280] and propose refinements to capture market risk in financial reporting.
This paper is the first to conduct an event study on the market response to exploration, resource and reserve announcements made by mining firms. Results from an event study using a matched firm approach that suggest that markets react positively to both the exploration and the resource announcements at the time of their release but find information value in the reserve announcements possibly because all of the information in these announcements have been anticipated by the market. In fact, there is evidence to suggest a high level of anticipation of all three types of announcements which should be a matter of concern for the regulators. The other major surprising finding in the study is that in every instance the market seems to have been overly enthusiastic about the announcements, as share prices turns down almost immediately afterwards and trends downward for an extended time. This leaves open the question as to why does the market get them so horribly wrong.
Thesis (Ph.D.)--University of Colorado, 1999 Includes bibliographical references (p. 75-78) Photocopy s
Las Cuentas Anuales emitidas por las empresas constituyen la principal fuente de información para la mayoría de usuarios de la misma. Sin embargo, tanto profesionales como investigadores en Contabilidad han mostrado severas críticas en cuando a la calidad y/o utilidad de las cifras expuestas en dichos Informes Anuales. Esta situación se agrava, aún más, en determinados sectores, como el de explotación de recursos naturales, donde una información de vital importancia como es el caso de los recursos a explotar, cuenta con alto agrado de incertidumbre. El caso más representativo lo representan el sector petrolífero en los Estados Unidos, cuyas empresas se ven obligadas, a partir de la emisión del SFAS núm. 69, a representar detallada información sobre las reservas de hidrocarburos que disponen, con el fin de proporcionar un mejor conocimiento de su realidad patrimonial.
En teoría, si este tipo de información es relevante y significativa, su publicación debe de tener algún tipo de repercusión entre los accionistas de estas empresas. Nuestro objetivo, por tanto, en analizar el impacto que, dentro del mercado de valores, pueda tener el tipo de información suplementaria emitida por las empresas petrolíferas a través del análisis empírico de estos datos.
Nuestros resultados son consistentes con la evidencia aportada por otros trabajos similares en los Estados Unidos, confirmando el escaso contenido informativo que la información analizada presenta dentro del mercado de valores
While a number of research studies have attempted to evaluate the information content of reserve quantity and reserve value disclosures, no research study has examined the information content of these reserve-related disclosures relative to one another. This study sets out to examine the information content of reserve quantity disclosures vs. reserve value disclosures. Further, this study examines the information content of disclosure of the components of the year-to-year changes in reserve quantities relative to the changes in reserve values. Both a discrimination methodology and the Davidson-MacKinnon's J test for non-nested models are used to test the two hypotheses. The results of testing using both methodologies provides no evidence to reject the null hypotheses in favour of the alternatives that the reserve value disclosures provide more information than the reserve quantity disclosures. Therefore, the results do not support the current FASB statement requiring reserve value disclosures. This information should be of use to the IASB in determining whether to require reserve value disclosures, similar to those required by the FASB, in addition to reserve quantity disclosures.
This paper studies the hedging activities of 119 U.S. oil and gas producers from 1998 to 2001 and evaluates their effect on firm value. Theories of hedging based on market imperfections imply that hedging should increase the firm's market value (MV). To test this hypothesis, we collect detailed information on the extent of hedging and on the valuation of oil and gas reserves. We verify that hedging reduces the firm's stock price sensitivity to oil and gas prices. Contrary to previous studies, however, we find that hedging does not seem to affect MVs for this industry. Copyright 2006 by The American Finance Association.
Investors and other users of financial statements often analyze financial statement information to evaluate the exploration efficiency of oil and gas firms. One approach commonly employed is to calculate an average per-unit cost of finding and developing oil and gas reserves using data disclosed by oil and gas firms in the footnotes to their financial statements. These average finding costs ratios, while widely used, are by no means universally accepted as providing meaningful insight into the exploration efficiency and potential profitability of an oil and gas firm. In fact, a number of financial analysts who specialize in oil and gas firms have argued that these finding costs ratios in fact provide no useful insights into how well a company has done. The purpose of our paper is to evaluate the usefulness of these finding costs measures as indicators of exploration efficiency and potential profitability. Our approach involves comparing the statistical association between various finding costs measures to a benchmark measure of exploration efficiency derived from a Cobb-Douglas regression. We also compare these finding costs measures to two commonly used financial statement measures of profitability—return on sales and return on assets—to evaluate whether finding costs are useful as indicators of profitability. Our results indicate that finding costs ratios calculated from readily available financial statement data provide useful insight into both exploration efficiency and the potential profitability of an oil and gas firm. Our findings are important because they provide empirical evidence useful in resolving a debate within the financial analyst community concerning the utility of these finding costs ratios.
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