Market-Wide Effects of Off-Balance Sheet Disclosures:

63 Pages Posted: 25 Jul 2017

See all articles by Marc Badia

Marc Badia

IESE Business School

Miguel Duro

IESE Business School; European Corporate Governance Institute (ECGI)

Bjorn Jorgensen

Gaizka Ormazabal

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: July 2017

Abstract

This paper studies the spillover effects of firms' off-balance sheet disclosures. We focus our analysis on the mandatory disclosure of oil and gas (O&G) reserves, a setting in which off-balance sheet information is particularly important to understand industry competition. Using a comprehensive sample of Canadian and US O&G producers we document two novel results. First, in contrast to prior research on the informational effect of peers' earnings announcements, we find evidence that firms' exhibit lower stock returns when their peers announce more positive news about O&G reserves. Second, consistent with peers' disclosures affecting managerial decision making, we document that larger increases in peers' reserves are accompanied by an increase in firms' investment. We corroborate our results by exploiting three sources of institutional variation. First, the North-American pipeline infrastructure constrains the supply of natural gas, and thus competition in the gas market, but not the supply of oil. Second, the introduction of the fracking technology substantially altered the competition dynamics in the natural gas market. Third, mandatory O&G disclosure rules were modified in Canada and the US in a similar fashion, albeit at different points in time. Overall, our evidence suggests that off-balance sheet disclosures have substantial market-wide effects in the form of both financial and real externalities.

Keywords: Disclosure of Oil and Gas Reserves, Disclosure Rules, Informational Spillovers, Real Effects of Disclosure Regulation.

JEL Classification: M41

Suggested Citation

Badia, Marc and Duro, Miguel and Jorgensen, Bjorn N and Ormazabal, Gaizka, Market-Wide Effects of Off-Balance Sheet Disclosures: (July 2017). CEPR Discussion Paper No. DP12152, Available at SSRN: https://ssrn.com/abstract=3008333

Marc Badia (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 932534200 (Phone)

Miguel Duro

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

No contact information is available for Bjorn N Jorgensen

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