Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

摘要

Oil and gas exploration and production firms have return profiles that are not easily explained by current financial theory – the variation in their market returns is non-Gaussian. In this paper, the nature and underlying reason for these significant deviations from expected behavior are considered. Understanding these differences in financial market behavior is important for a wide range of reasons, including: assessing investments, investor relations, decisions to raise capital, assessment of firm and management performance. We show that using a “thicker tailed” mixture of two normal distributions offers a significantly more accurate model than the traditionally Gaussian approach in describing the behavior of the value of oil and gas firms. This mixture of normal distribution is also more effective in bridging the gap between management theory and practice without the need to introduce complex time-sensitive GARCH and/or jump diffusion dynamics. The mixture distribution is consistent with ambidexterity theory that suggests firms operate in two distinct states driven by the primary focus of the firm: an exploration state with high uncertainty and, an exploitation (or production) state with lower uncertainty. The findings have direct implications on improving the accuracy of real option pricing techniques and futures analysis of risk management. Traditional options pricing models assume that commercial returns from these assets are described by a normal random walk. However, a normal random walk model discounts the possibility of large changes to the marketplace from events such as the discovery of important reserves or the introduction of new technology. The mixture distribution proves to be well suited to inherently describe the unusually large risks and opportunities associated with oil and gas production and exploration. A significance testing study of 554 oil and gas exploration and production firms empirically supports using a mixture distribution grounded in ambidexterity theory to describe the value fluctuations for these firms.