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Oil Price Uncertainty and IPOs

We examine the impact of oil price uncertainty on IPO volume in the oil and gas sector. By using the implied volatility of oil options, a forward-looking uncertainty measure, we identify the effect of uncertainty on the going-public decision. Oil price uncertainty exhibits a strong negative relation to IPO volume. A one standard deviation decrease in the implied volatility results in a 29% increase in the number of quarterly IPOs. The effect is concentrated among the price-sensitive upstream producers. We further report that uncertainty positively impacts the IPO withdrawal decision and increases the value of postponing the offering.

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Keywords: Energy economics, IPOs, Implied crude oil volatility, Oil and gas sector, Oil price uncertainty

DOI: 10.5547/01956574.44.6.mblo

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Published in Volume 44, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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