Capital Structure Decisions in Energy Companies Listed on the Oslo Stock Exchange

Abstract

In this thesis, we have analyzed which factors that may affect the capital structure choices of the oil and gas companies listed on the Oslo Stock Exchange, which historically have paid a huge contribution to the Norwegian economy and welfare. This sector consists of 48 companies which we have analyzed from 1998 until 2016. The companies in our dataset compete in a capital intensive industry where ongoing investments are required to develop and exploit projects and future growth prospects. Through this thesis, we aim to provide a contribution to the understanding of which factors the companies emphasize on when deciding how to finance their activities and operations. We have created a model where the dependent variable representing capital structure is defined as debt ratio. The independent variables are the degree of asset tangibility, firm size, profitability, risk and growth. We have also included two control variables, oil price and interest rate to enrich our thesis with elements of macroeconomic nature. The findings show that there is a positive relationship between debt ratio and firm size, profitability and interest rate. This means that the debt ratio increases when firm size, profitability and interest rate increase. We also found a negative relationship between debt ratio and asset tangibility, as well as between debt ratio which means that when the asset tangibility increases the debt ratio decreases. We found a negative relationship between debt ratio and our proxy for risk, the Z-score, which means that when the debt ratio increases, risk increases. The findings also revealed that there is no significant relationship between the dependent variable, debt ratio, and oil price and growth.