Vertical Integration of Industrial Companies for Mitigating the Impact of Volatility in the Economy

Abstract

The modern conditions of a globalized economy, in which there are no non-interacting elements, has both undeniable benefits and obvious costs. In particular, one of the costs is dependence of a separate structural element of industry and its efficiency on the general state of the system as well as on other components of the economy. The oil refining industry (a branch of the industrial economy) largely depends on fluctuations in oil prices, which make up the volume of costs and revenue, which in turn affect the level of profit. One of the ways to mitigate market volatility is vertical integration. The purpose of the study was to test the hypothesis about the positive impact of vertical integration on the level of volatility. The methodological tools are graphical analysis and nonparametric tests. We used stock prices of companies in the oil refining industry to calculate volatility coefficients, average profitability and the Sharpe coefficient. The research hypothesis was supported. Ceteris paribus, vertically integrated economic entities with a lower degree of volatility have the same level of profitability compared to non-integrated companies in the same industry.