| dc.description.abstract | This research paper provides a comprehensive analysis of the optimal leverage in the
shipping industry, focusing on the influence of asset volatility on static and dynamic
capital structure decisions. Under static model conditions with fixed bankruptcy costs,
the optimal leverage ratio is determined to be 47%. However, when including additional
costs such as call premiums and debt issuance costs in the dynamic model, this ratio
adjusts to 43%.
Our research is based on a sample of 167 shipping companies over a period between 2010
and 2022. The companies are primarily based on the global SIC code 44, which includes
companies within waterborne transport. Additionally, we include firms operating large
vessels that may not solely focus on shipping and exclude companies focusing on harborand
port management and passenger- and cruise ship operations.
The study provides insights into leveraging practices and highlights the impact of market
perceptions of risk on capital structure decisions in the shipping sector. The results have
practical implications for shipping companies looking to optimize their capital structure
and enhance their financial performance. The findings indicate that increased asset
volatility raises a shipping company’s value at default. Using comparative static and
dynamic models, the study finds that higher asset volatility lowers leverage ratios among
shipping companies. A 1% increase in asset volatility suggests that the market leverage
ratio for a shipping company decreases by 2.8%. Furthermore, when the freight rates
increase, the earnings follow, leading to a decrease in leverage due to higher valuations in
the market. This suggests that the shipping industry relies more on using excess cash to
fund its investments during booms rather than issuing debt. | en_US |
