Capital structure decisions of globally-listed shipping companies
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In: Transportation Research Part E: Logistics and Transportation Review, Vol. 52, 01.06.2013, p. 49-76.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Capital structure decisions of globally-listed shipping companies
AU - Drobetz, Wolfgang
AU - Gounopoulos, Dimitrios
AU - Merikas, Andreas
AU - Schröder, Henning
N1 - Publisher Copyright: © 2012 Elsevier Ltd
PY - 2013/6/1
Y1 - 2013/6/1
N2 - Debt capital has traditionally been the most important source of external finance in the shipping industry. The access that shipping companies nowadays have to the capital markets provides them with a broader range of financing instruments. As such, this study investigates the determinants of capital structure decisions using a sample of 115 exchange-listed shipping companies. We test whether listed shipping companies follow a target capital structure, and we analyze their adjustment dynamics after deviations from this target leverage ratio. When compared with industrial firms from the G7 countries, shipping companies exhibit higher leverage ratios and higher financial risk. Standard capital structure variables exert a significant impact on the cross-sectional variation of leverage ratios in the shipping industry. Asset tangibility is positively related to corporate leverage, and its economic impact is more pronounced than in other industries. Profitability, asset risk, and operating leverage are all inversely related to leverage. There is only weak evidence for market-timing behavior of shipping companies. Because demand and supply in the maritime industry are closely related to the macroeconomic environment, leverage behaves counter-cyclically. Using different dynamic panel estimators, we further document that the speed of adjustment after deviations from the target leverage ratio is lower during economic recessions. On average, however, the capital structure adjustment speed in the maritime industry is higher compared with the G7 benchmark sample. These findings indicate that there are substantial costs of deviation from the target leverage ratio due to high expected costs of financial distress. Our results have implications for shipping companies’ risk management activities.
AB - Debt capital has traditionally been the most important source of external finance in the shipping industry. The access that shipping companies nowadays have to the capital markets provides them with a broader range of financing instruments. As such, this study investigates the determinants of capital structure decisions using a sample of 115 exchange-listed shipping companies. We test whether listed shipping companies follow a target capital structure, and we analyze their adjustment dynamics after deviations from this target leverage ratio. When compared with industrial firms from the G7 countries, shipping companies exhibit higher leverage ratios and higher financial risk. Standard capital structure variables exert a significant impact on the cross-sectional variation of leverage ratios in the shipping industry. Asset tangibility is positively related to corporate leverage, and its economic impact is more pronounced than in other industries. Profitability, asset risk, and operating leverage are all inversely related to leverage. There is only weak evidence for market-timing behavior of shipping companies. Because demand and supply in the maritime industry are closely related to the macroeconomic environment, leverage behaves counter-cyclically. Using different dynamic panel estimators, we further document that the speed of adjustment after deviations from the target leverage ratio is lower during economic recessions. On average, however, the capital structure adjustment speed in the maritime industry is higher compared with the G7 benchmark sample. These findings indicate that there are substantial costs of deviation from the target leverage ratio due to high expected costs of financial distress. Our results have implications for shipping companies’ risk management activities.
KW - Capital structure
KW - Maritime financial management
KW - Speed of adjustment
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=84873481225&partnerID=8YFLogxK
U2 - 10.1016/j.tre.2012.11.008
DO - 10.1016/j.tre.2012.11.008
M3 - Journal articles
AN - SCOPUS:84873481225
VL - 52
SP - 49
EP - 76
JO - Transportation Research Part E: Logistics and Transportation Review
JF - Transportation Research Part E: Logistics and Transportation Review
SN - 1366-5545
ER -