This research examines market reactions to financial distress announcements by small privately held Canadian oil firms operating in the upstream sector between 2015 and 2021, employing an event study methodology, with daily spot prices for Brent and WTI crude oil serving as market benchmarks. The sample includes 11 firms that filed for insolvency, giving 99 observations for analysis. Data were collected from the publicly available Haynes Boone repository, ensuring transparency and verifiability. Abnormal returns were computed using market-adjusted returns to control for general market movements, isolating event-specific effects. The findings reveal statistically significant yet modest abnormal returns around the announcement day, indicating a measured market reaction. These results indicate that investors may partially anticipate such events and interpret them as potential restructuring opportunities rather than indicators of sector-wide collapse. The study underscores the importance of transparent disclosure and structured legal frameworks in moderating market volatility during financial distress. While the analysis is confined to short-term effects and small firms, it provides valuable insights into how financial distress in small upstream oil firms influences commodity markets, contributing new evidence to the literature on event studies and financial distress in energy markets, and offers implications for policymakers aiming to enhance market stability.
Salem Al Mustanyir (Wed,) studied this question.