Publication Announcements – February 2021
By William (Blake) Sutton and Zhen Zhu, Ph.D.
Exploration and Production (E&P) companies face a tremendous amount of financial risks nowadays with oil prices experiencing historical lows and large volatilities. Just like any business in the competitive market, maximizing expected future cash flows is the way for E&P companies to meet investors’ return expectations and sometimes it may be the way to survive the harsh business environment. Oil and gas firms will not only consider the expected revenues to be successful but also expected costs when making strategic investment decisions. With the advent of deep horizontal wells, the costs associated with exploration and production have gone through the roof. Simply drilling and completing the average one-mile lateral well has an average cost of approximately 4.5 million dollars in Grady or McClain county Oklahoma (SCOOP), two-mile lateral wells will double that cost. However, this exorbitant figure is not the only thing exploration and production (E&P) companies need to take into consideration. In these areas where high production levels are typical, but not guaranteed, oil and gas companies can have millions of dollars tied up before the bit even hits the ground. This article discusses the often overlooked but ever-important costs associated with the land management process. Each play not only has its own geological characteristics but also the wells within it typically have similar associated costs and ownership (USGS, 2017). To illustrate the idea, the land management costs in two main plays will be compared and contrasted in the present work: the heavily explored and proven “SCOOP” in Oklahoma and the comparatively new and “unproven” Powder River Basin (PRB) in solitary Wyoming.
“Dynamic Carbon DioxideTaxation with Revenue Recycling” – Journal of Cleaner Production
By Travis Roach, Ph.D.
The accumulation of carbon dioxide in the atmosphere has global impacts via changing weather patterns and increasing average temperatures. These emissions, while globally important, are largely the result of decisions made at a more microeconomic level – the result of individual consumption preferences and production technologies used to make the goods we consume. Using a micro-founded DSGE framework that is calibrated with data from the United States, I model the accumulation of carbon dioxide emissions while accounting for market imperfections and frictions in the form of monopolistic competition, labor income taxation, and price-stickiness. Within this second-best setting, the issues of carbon taxation and revenue recycling are addressed. I propose a dynamic, rules-based, and revenue-neutral carbon tax to reduce carbon emissions and measure the resulting welfare effects. A measure of compensating variation indicates that consumers are made better off following the implementation of a dynamic carbon tax with lump-sum redistribution regardless of how the externality effect of emissions is modeled.
By Marvin Bontrager, Ph.D., Suzanne Clinton, D.B.A., and Lee Tyner, Ed.D.
An increasing number of organizations are implementing formal flexible work arrangements (FWAs) policies to address work-life balance concerns. Although FWAs may exist in the workplace, informal factors remain that may impact employees’ willingness to participate in these programs. In addition, black swan events such as COVID-19 may force employers to mandate FWAs for their employees.
Policies such as paid leave provide opportunities for HRD practitioners to utilize FWAs as a mechanism to facilitate employee development and organizational outcomes. It is important that the informal processes of FWAs receive due attention by HRD practitioners and scholars alike.
“Leverage Target and Payout Policy” – The Journal of Financial Research
By Sharier Azim Khan, Ph.D.
Depending on whether existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to debt. Additionally, I show that when firms have below‐target debt, they use a greater fraction of proceeds from net debt issues to finance dividends. I obtain similar results when repeating the tests with total payouts (dividends plus repurchases) instead of dividends only.
By Zhen Zhu, Ph.D.
How to effectively manage risk is an important issue that the financial and commodity industries face. One of the issues is the estimation of the financial and consumption asset price volatility and the estimation of the optimal hedge ratio. Our study examines whether it is important to incorporate fundamental variables in estimating price returns and volatilities by studying the U.S. natural gas market. In doing so, we explain the spot and futures returns and volatilities based on market fundamental variables such as weather, gas underground storage, oil price and macroeconomic news. We find significant impacts of most of these variables on gas price. In addition, we calculate the optimal hedge ratio based on the price and volatility estimations. Our empirical evidence suggests that, as expected, the optimal hedge ratio was not constant but fluctuated significantly during the sample period. Incorporating the time-varying hedge ratio has improved hedging effectiveness by a large percentage. In addition, incorporating market fundamental variables further improves the hedging effectiveness significantly. Our empirical results support the proposition that it is important to incorporate fundamental market variables in analyzing commodity price movement and improving hedging effectiveness.
By Wenkai Zhou, Ph.D.
In this research, we examine the pivotal effects of search volume on technology firms’ financial performance and add incremental knowledge on the importance of online search data. We use panel data with ordinary least squares (OLS) regression analysis covering a fixed period to provide insights into the impact of the volume of online search queries of the top five U.S. technology firms’ brand names and products on their financial performance. Through a longitudinal study of the five most prominent technology firms in the United States, this research provides evidence that online search volume of a firm’s brand names is negatively related to firms’ performance (return on equity (ROE), return on assets (ROA), and Tobin’s Q), while search volume for a firm’s major products’ names is positively associated with ROE and ROA. Informed by accessibility-diagnosticity theory and construal-level theory, we believe our findings hold because the negative effect of online information is more saliently activated by higher-level construals (e.g., corporate brand information) than lower-level construals (e.g., product information). The findings provide new insights on search engine data interpretation. The theoretical and managerial contributions of these results are also discussed.
“Will a Green Color and Nature Images Make Consumers Pay More for a Green Product?” – Journal of Consumer Marketing*
By Manoshi Samaraweera, Ph.D., Jeanetta Sims, Ph.D., and Dini Homsey, Ph.D.
*Article has been accepted for publication.
