Corporate Structure and Regulatory Risk in the Oil & Gas Industry

Whether or not a publicly traded corporation's individual oil and well facility had committed an environmental violation from 2010 to 2015, was examined against measures of financial liquidity constraints for its corporate owners, namely the ratio of capital expenditures to total assets, and free cash flow to total assets, through a logistic regression. Its purpose was to identify whether or not extra cash might lead to oil and well facilities acting against shareholders best interests by committing environmental violations in the context of agency theory. It was found that when corporations have more cash on hand, through increased free cash flow or capital expenditures relative to total assets, a corporation is less likely to have environmental violations. As such, it is advisable that regulatory agencies such as the Environmental Protection Agency, who are faced with limited resources to investigate environmental behavior, when looking at publicly traded corporation's oil and well facilities, look towards the ones that have lower than average capital expenditures or free cash flow to total assets. I would like to thank Kenneth Gerow and Benjamin Gilbert for their support for writing this thesis.