Do political risks harm development of oil fields?

Abstract

We examine the impact of political risks and financial development on investments in the petroleum industry utilizing a unique dataset of investments in individual oil and gas fields around the world. We find that the expected time to investment is shorter in countries that are politically stable, have solid property rights protection and more developed financial systems. Political risks have the strongest impact on multinational companies, whereas financial development matters only for domestic national oil companies. At the company level we find that expected time to investment is shorter for companies with higher valuation and lower debt. Moreover, companies are more likely to invest in countries where they invested recently and less likely to invest in countries where their competitors invested recently.