The Financing Decision of Oil and Gas Companies: The Role of Country Level Shareholder Protection

This chapter investigates the financing decisions of oil and gas companies in various countries for the period from 2001 to 2015. We focus on the determinants of proportions of both internal (cash flows) and external (debt and equity) funds used in the financing of capital expenditures and aim to understand which theories explain the financing decisions of oil and gas companies. The results provide strong support to the dynamic trade-off theory and partial support to the pecking order and market timing theories. The choice of financing source depends on the shareholder protection at the country level. Companies in countries with a high level of shareholder protection are willing to issue more equity than companies in countries with a low level of shareholder protection.