Regulation and Political Costs in the Oil and Gas Industry: An Investigation of Discretion in Reporting Earnings and Oil and Gas Reserves Estimates

Description:

This study investigates the use of discretion by oil and gas companies in reporting financial performance and oil and gas reserve estimates during times of high political scrutiny resulting from increases in energy prices. Hypotheses tested in prior literature state that companies facing the risk of increasing taxes or new regulations reduce reported earnings to reduce this risk. This study uses a measure of high profitability (rank order of return on assets relative to industry peers) to identify oil and gas companies more likely to manage earnings during the period from 2002 to 2008. Two measures of discretionary accruals (total and current discretionary accruals), and a measure of discretionary depreciation, depletion, and amortization (DDA) were used as indicators of discretion exercised in reporting earnings. Data on oil and gas reserve disclosures was also hand-collected from Forms 10-K to investigate whether managers use reserve estimate revisions to reduce reported earnings through increasing the annual depletion expense. Results suggest that both oil and gas refining and producing firms use negative discretionary accruals to reduce reported earnings. Results also indicate that profitability is an important determinant of the use of negative discretionary accruals by these companies regardless of the time period examined. There is also evidence that oil and gas producing firms opportunistically revise their oil and gas reserve estimates to increase depreciation, depletion, and amortization expense during periods of high oil prices.

Creator(s): Kurdi, Ammr
Creation Date: August 2010
Partner(s):
UNT Libraries
Collection(s):
UNT Theses and Dissertations
Usage:
Total Uses: 1,617
Past 30 days: 72
Yesterday: 4
Creator (Author):
Publisher Info:
Publisher Name: University of North Texas
Place of Publication: Denton, Texas
Date(s):
  • Creation: August 2010
Description:

This study investigates the use of discretion by oil and gas companies in reporting financial performance and oil and gas reserve estimates during times of high political scrutiny resulting from increases in energy prices. Hypotheses tested in prior literature state that companies facing the risk of increasing taxes or new regulations reduce reported earnings to reduce this risk. This study uses a measure of high profitability (rank order of return on assets relative to industry peers) to identify oil and gas companies more likely to manage earnings during the period from 2002 to 2008. Two measures of discretionary accruals (total and current discretionary accruals), and a measure of discretionary depreciation, depletion, and amortization (DDA) were used as indicators of discretion exercised in reporting earnings. Data on oil and gas reserve disclosures was also hand-collected from Forms 10-K to investigate whether managers use reserve estimate revisions to reduce reported earnings through increasing the annual depletion expense. Results suggest that both oil and gas refining and producing firms use negative discretionary accruals to reduce reported earnings. Results also indicate that profitability is an important determinant of the use of negative discretionary accruals by these companies regardless of the time period examined. There is also evidence that oil and gas producing firms opportunistically revise their oil and gas reserve estimates to increase depreciation, depletion, and amortization expense during periods of high oil prices.

Degree:
Level: Doctoral
Discipline: Accounting
Physical Description:

vi, 83 p. : ill.

Language(s):
Subject(s):
Keyword(s): Oil and gas | reserve estimation | abnormal accruals | depletion
Contributor(s):
Partner:
UNT Libraries
Collection:
UNT Theses and Dissertations
Identifier:
  • OCLC: 696782197 |
  • UNTCAT: b3910607 |
  • ARK: ark:/67531/metadc30481
Resource Type: Thesis or Dissertation
Format: Text
Rights:
Access: Public
License: Copyright
Holder: Kurdi, Ammr K.
Statement: Copyright is held by the author, unless otherwise noted. All rights reserved.