Impact of Paris Agreement on financing strategy: Evidence from global FPSO industry

Abstract

This study explores the impact of the Paris Agreement on the determinants of firm-level capital structure decisions of listed contractor-owned Floating Production Storage and Offloading (FPSO) companies in the oil and gas (O&G) industry from 2000 to 2019. The study identified various financing structures between contractor-owned FPSO companies due to their individual and institutional characteristics. Tangibility, profitability, market-to-book (growth), size and effective tax rates are critical determinants of capital structure. Overall, the results support applying the pecking-order theory (PoT) from a firm-level and macro-economic context. The 2015 Paris Agreement ratification significantly impacted the capital structure determinants; the dynamic association has changed in the post-Paris period. Besides, the impact of the global financial crisis on leverage ratios was potentially mitigated by the upward trend in Brent crude oil price between 2007 and 2013.

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