Efficiency of European oil companies: an empirical analysis

Abstract

We explore the efficiency in the oil industry employing a sample of around 300 companies operating in Europe over 2010–2019. We construct efficiency scores by means of DEA non-parametric techniques. Average efficiency in the sample is modest, 0.27, and decreasing over time. We examine the association of efficiency with economic and financial variables. Results suggest that size is closely associated to efficiency. Large (in the top 10th percentile of income) and very small firms are more efficient, ceteris paribus, whereas medium size and small firms exhibit lower levels of efficiency. Firms which have strived more to implement sustainable technologies and cut greenhouse emissions are more efficient too. Increases in employee costs and decreases in financial solvency jeopardize efficiency, which displays a positive correlation with economic activity and oil prices. As a robustness test, we have repeated the exercise by means of the Simar-Wilson methodology, which confirms our main results regarding efficiency levels and trends and correlations with other variables. Our findings suggest that an industry consolidation is foreseeable in the future.

Does corporate social performance improve environmentally adjusted efficiency? Evidence from the energy sector

“…Therefore, overall, the results matched those of the truncated regression. Additionally, the control variables were consistent with the truncated regression, confirming the robustness of our findings to changes in the empirical model.Regarding macroeconomic variables, oil price and GDP growth were positively and significantly related to environmental efficiency, in agreement with the findings of other authors such asSueyoshi and Wang (2018) andSánchez-Robles et al (2022), who have pointed to there being procyclical behaviour when it comes to efficiency.…”

“…Robles et al (2022) on the energy industry in that the liquidity ratio and efficiency have a statistically positive relationship Broadstock et al (2019). have drawn the same conclusion for the liquidity ratio and eco-efficiency in a multi-sector study of Japanese companies.…”

“…Following other studies (Lu et al, 2023; Ren et al, 2022; Sánchez‐Robles et al, 2022; Stefanoni & Voltes‐Dorta, 2021; Sueyoshi et al, 2017) and since energy efficiency is essential for combatting global warming and climate change, we incorporated energy use along with the other inputs used in the calculation of operating efficiency (total number of employees, property plant and equipment [PPE] and operating cost).…”

“…Following previous studies that had used the same measure of To prevent specification problems in the model, we incorporated certain control variables already identified in the literature that could be divided into two groups: the first one employed those related to specific characteristics of the companies; the second adopted macroeconomic variables. Among the company-specific variables, we included size as the logarithm of total assets (Xie et al, 2018), ROA as net income divided by average total assets, expressed as a percentage (Ren et al, 2022), R&D as R&D expenses divided by operating cost (Nollet et al, 2016), strategic share as the percentage of strategic shareholders in the company (De Mesnard, 2022), the solvency ratio as current assets divided by current liabilities (Sánchez-Robles et al, 2022) and interest coverage ratio as EBIT divided by financial expenses (Yildirim, 2020). Additionally, in the robustness analysis we included two variables that previous studies had shown influences efficiency: the oil price (Sánchez-Robles et al, 2022) and GDP growth (L opez-Penabad et al, 2022).…”

“…that has been widely used in the literature on efficiency, the Tobit model, since the EAE values are censored between 0 and 1. The model was specified using random effects because fixed effects in non-linear models lead to inconsistent estimates(Sánchez-Robles et al, 2022).In general, the results of the Tobit random effects model were like those of the reference model (Table8), and the estimates of most of the coefficients were stable in both models. The U-shaped relationship was confirmed between the overall ESG score, the social and corporate governance pillar, the human rights and management dimensions and EAE.…”