HFRC Working Paper Series
Unsere Forschungergebnisse unterstützen die gesellschaftliche Debatte rund um aktuelle finanzökonomische Fragestellungen. Durch die Veröffentlichung der Arbeiten in internationalen Fachzeitschriften und unserer Working Paper Series sollen diese für einen möglichst breiten Adressatenkreis zugänglich werden.
HFRC Working Paper Series
Unsere Arbeitspapiere fassen die neuesten Ergebnisse aus der Forschungsarbeit des Instituts zusammen. Die Papiere stellen Diskussionsbeiträge dar und sollen zur kritischen Kommentierung der Ergebnisse anregen.
Maritime Financial Management
Institutional ownership and firm performance in the global shipping industry
Wolfgang Drobetz, Sebastian Ehlert, Henning Schröder
Transportation Research Part E: Logistics and Transportation Review | 01/2021 | Forthcoming
We examine the effect of institutional investors on the valuation of listed shipping firms. Institutional investors have a positive influence on the market value of shipping firms, confirming that institutional ownership is a “universal” corporate governance mechanism. This valuation effect is more pronounced in firms dominated by institutional investors with a short-term investment horizon. It is also stronger in firms with high stock liquidity, suggesting that short-term investors, through the threat of exit, are able to mitigate agency conflicts and improve corporate governance. Investment regressions indicate that shipping firms with a larger fraction of short-term investors are better able to exploit growth opportunities.
The effects of geopolitical risk and economic policy uncertainty on dry bulk shipping freight rates
Wolfgang Drobetz, Konstantinos Gavriilidis, Styliani-Iris Krokida, Dimitris Tsouknidis
Applied Economics | 12/2020 | Forthcoming
We examine the effects of geopolitical risk (GPR) and economic policy uncertainty (EPU) on shipping freight rates using a Bayesian VAR model. A positive shock to global GPR has an immediate positive, but gradually diminishing, effect on dry bulk shipping freight rates. This effect is driven by global rather than country-specific GPR shocks. Positive shocks to EPU indices for the U.S., Brazil, and China trigger a negative response of dry bulk shipping freight rates that builds gradually over several months. Historical cumulative effects of both GPR and EPU shocks on freight rates can be large and of different signs during different subperiods. Our results are important for both shipowners and charterers when fixing chartering strategies and prioritizing investments in newbuilding or second-hand vessels.
Capital allocation and ownership concentration in the shipping industry
Wolfgang Drobetz, Malte Janzen, Ignacio Requejo
Transportation Research Part E: Logistics and Transportation Review | 02/2019
We measure the sensitivity of investment to changes in investment opportunities in the shipping industry, and test whether this relation is moderated by ownership concentration. For a sample of 126 globally listed shipping firms, we find that investment in commercial shipping follows freight rates, a measure of the potential income stream from owning a vessel. Ownership concentration, measured as the ownership stake of the largest shareholder, reinforces the positive effect of freight rates on investment, indicating a higher relative efficiency of capital allocation. The positive impact ownership has on the investment-freight rate sensitivity also translates into higher firm value. An analysis of investor identity shows that our results are driven by the group of firms where the largest owner is a financial investor, who is usually more focused on shareholder value maximization.
Corporate cash holdings in the shipping industry
Meike Ahrends, Wolfgang Drobetz, Nikos K. Nomikos
Transportation Research Part E: Logistics and Transportation Review | 04/2018
We examine the corporate cash holdings of listed shipping companies. Shipping firms hold more cash than similar firms in other asset-heavy industries. Higher cash holdings in the shipping industry are not attributable to firm- or country-level characteristics, but rather to the higher marginal value of cash. Shipping firms value an additional dollar of cash higher than matched manufacturing firms, regardless of their financial constraints status, but depending on their cultural background and the cyclicality of their expansion opportunities. Less procyclical shipping firms have a higher marginal value of cash, and this valuation effect is most pronounced in bad times of the business cycle when external capital supply tends to become scarce. Overall, it appears that shipping companies are more conservative than their peers in managing their cash positions.
Determinants of management earnings forecasts: The case of global shipping IPOs
Wolfgang Drobetz, Dimitrios Gounopoulos, Anna Merika, Andreas Merikas
European Financial Management | 11/2017
Firms that go public on global stock markets are not obliged to disclose earnings forecasts in their prospectuses. We use this fact to examine the shipping industry, where most firms voluntarily issue earnings forecasts during the IPO process, thus providing unique, international‐level evidence. We find overall pessimistic forecasts of ship owners, primarily because of the industry's uncertain and volatile environment. High ship owner participation after going public is associated with less accurate earnings forecasts. Our results further indicate that financial leverage, a listing in an emerging stock market, and global market conditions are other main factors responsible for inaccurate earnings forecasts.
Cash flow sensitivities during normal and crisis times: Evidence from shipping
Wolfgang Drobetz, Rebekka Haller, Iwan Meier
Transportation Research Part A: Policy and Practice | 08/2016
Using a system of equations model, we analyze how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments. Even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis. These firms were nevertheless able to increase long-term debt. Banks internalized the impact of foreclosure decisions on vessel prices and avoided an industry-wide collateral channel effect. Even during benign economic conditions, financially weak shipping firms underinvest because of their inability to raise sufficient external capital. The substitution between long- and short-term debt during the pre-2008 crisis periods shows that the composition of financing sources is more indicative of whether firms face financial constraints than the pure size of the financing-cash flow sensitivities. An analysis of firms’ excess cash holdings confirms the importance of financial flexibility.
Systematic risk behavior in cyclical industries: The case of shipping
Wolfgang Drobetz, Christina Menzel, Henning Schröder
Transportation Research Part E: Logistics and Transportation Review | 04/2016
This study explores macroeconomic and industry-level effects on corporate systematic risk (or beta) for the international shipping industry. We document the extent to which stock market betas fluctuate over time in this asset-intensive and cyclical industry. Moreover, we analyze the fundamental determinants of systematic risk. We find evidence for high levels of systematic risk in shipping stocks, which match the fundamental risk characteristics of the industry (such as high financial and operating leverage). Shipping firms exhibit distinct industry-specific beta dynamics compared to firms from benchmark sectors or the average firm in the S&P 500 index. Changes in both economic conditions and industry-specific risk factors explain large proportions of beta variation in the cross-section of firms and over time.
Corporate social responsibility disclosure: The case of international shipping
Wolfgang Drobetz, Anna Merika, Andreas Merikas, Mike G. Tsionas
Transportation Research Part E: Logistics and Transportation Review | 11/2014
Based on practices and legislation in the shipping industry, we construct a corporate social responsibility (CSR) disclosure index for listed shipping companies. We use Markov Chain Monte Carlo (MCMC) techniques for Bayesian inference, and we estimate the marginal effects of firm characteristics on CSR disclosure for each firm. Our results show a positive relationship between CSR disclosure and financial performance for each firm in our international sample. Firm size, financial leverage, and ownership structure are also associated with CSR disclosure. Our findings suggest that a majority of listed shipping companies have integrated CSR practices into their strategic planning and operations.
Capital structure decisions of globally-listed shipping companies
Wolfgang Drobetz, Dimitrios Gounopoulos, Andreas Merikas, Henning Schröder
Transportation Research Part E: Logistics and Transportation Review | 06/2013
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.
The development of a performance index for KG funds and a comparison with other shipping-related indices
Wolfgang Drobetz, Lars Tegtmeier
Maritime Economics and Logistics | 02/2013
Despite their high economic importance, academic research has granted KG funds only marginal attention. A main reason is the lack of reliable performance data due to non-observable market prices during the lifetime of a KG fund. In order to measure the performance of KG funds, we construct an index using a database of more than 300 German one-ship companies during the sample period from December 1996 to December 2007. Looking at the distributional characteristics and the correlation structures, we analyse the co-movement of the KG index with a broad set of other shipping-related indices. The variation of our index is more dependent on vessel prices than on charter rates. Moreover, we use principal component analysis (PCA) in order to examine whether there are common structures and linkages between the different indices. On the basis of the resulting factor loadings, the KG index exhibits peculiar risk-return characteristics. PCA identifies one statistical factor that is specific to KG funds in the sense that only the KG index loads significantly on this particular factor. Our index does not merely represent a linear combination of vessel prices and freight rates, and it also does not stand in direct relationship with all other shipping-related indices. Instead, it constitutes a new index concept measuring the development of the market value of equity and distributions in the form of a performance index and incorporates specific information that is primarily of importance for one-ship companies. The availability of a performance index will likely increase transparency in the market for closed-end ship funds.
Dynamics of time-varying volatility in the dry bulk and tanker freight markets
Wolfgang Drobetz, Tim Richter, Martin Wambach
Applied Financial Economics | 04/2012
This study examines whether shocks from macroeconomic variables or asymmetric effects are more suitable for explaining the time-varying volatility in the dry bulk and tanker freight markets or whether both effects should be incorporated simultaneously. Using Baltic Exchange indices during the sample period from March 1999 to October 2011 on a daily basis, we separately analyse the impact of macroeconomic shocks and asymmetric effects on the conditional volatility of freight rates by using a GARCH-X model and an EGARCH model, respectively. Furthermore, we simultaneously investigate both effects by specifying an EGARCH-X model. Assuming not only a normal distribution but also a t-distribution in order to better capture the fat tails of error terms, three important conclusions emerge for modelling the conditional volatility of freight rates: (i) The assumption of a t-distribution is better suited than a normal distribution is. (ii) Macroeconomic factors should be incorporated into the conditional variance equation rather than into the conditional mean equation. In addition, the number of macroeconomic factors that exhibit explanatory power decreases under a t-distribution. (iii) While there seem to be no asymmetric effects in the dry bulk freight market, these effects are strongly pronounced in the tanker freight market. Our empirical findings have important implications for freight rate risk management.
Financing shipping companies and shipping operations: A risk‐management perspective
Stefan Albertijn, Wolfgang Bessler, Wolfgang Drobetz
Journal of Applied Corporate Finance | 12/2011
Shipping has always been a volatile and cyclical business. The extreme changes in revenues, operating cash flows, and asset values during the recent financial crises have upset the usual means of financing shipping companies. While bank debt will remain important in the future, the new regulatory environment has been forcing shipping banks to shift these risks from their balance sheets to capital markets through instruments such as loan securitization. As a result, the shipping industry will increasingly look to capital markets for external funds. And shipping banks are likely to change from being commercial bank lending institutions to becoming more like investment banks that arrange a variety of financing solutions, including high yield bonds or public equity. Risk management will be central to shipping companies in this new environment. Shipping companies can manage their own risks by modifying operations, employing freight and vessel price derivatives, or adjusting their capital structures. To arrive at the value‐maximizing combination of these three basic methods, they must decide which risks to bear, which to manage internally, and which to transfer to the capital markets. These decisions require shipping financial managers to assess the effect of each risk on firm value, understand how each contributes to total risk, and determine the most cost‐effective way to limit that risk to an acceptable level.
Common risk factors in the returns of shipping stocks
Wolfgang Drobetz, Dirk C. Schilling, Lars Tegtmeier
Maritime Policy and Management | 03/2010
The knowledge of risk factors that determine an industry's expected stock returns is important to assess whether this industry serves as a separate asset class. This study analyses the macroeconomic risk factors that drive expected stock returns in the shipping industry and its three sectors: container, tanker, and bulker shipping. Our sample consists of the monthly returns of 48 publicly-listed shipping companies over the period from January 1999 to December 2007. We use shipping stocks together with a set of country or other industry indices to estimate the macroeconomic risk profiles and the corresponding factor risk premiums. Using a Seemingly Unrelated Regressions (SUR) model to estimate factor sensitivities, we document that shipping stocks exhibit remarkably low stock market betas. We also provide evidence that a multidimensional definition of risk is necessary to capture the risk-return spectrum of shipping stocks. A one-factor model produces large pricing errors, and hence it must be rejected based on tests of the model's orthogonality conditions using the Generalized Method of Moments (GMM). In contrast, when the change in the trade-weighted value of the US$, the change in G-7 industrial production, and the change in the oil price are added as additional risk factors, the resulting multifactor model is able to explain the cross-section of expected stock returns. The risk-return profile of shipping stocks differs from country and other industry indices. However, the sensitivities to global systematic risk factors are similar across all three sectors of the shipping industry. Overall, our results suggest that shipping stocks have the potential to serve as a separate asset class. Our findings also have important implications for computing the cost of equity capital in the shipping industry.
Ship funds as a new asset class: An empirical analysis of the relationship between spot and forward prices in freight markets
Wolfgang Bessler, Wolfgang Drobetz, Jörg Seidel
Journal of Asset Management | 07/2008
Over the last decade, various new asset classes have emerged as alternatives to the more traditional investments. Although they appear attractive at a first glance, there exists hardly any historical performance track record, and experience with the return generating variables is limited. For ship funds and the valuation of shipping projects, the prevailing freight rates are important price-determining factors. Therefore, knowledge about the time series properties of spot and forward freight rates is essential for a better understanding of the return generating process of ship funds. There are, however, several peculiarities. Because shipping is a nonstorable service, forward prices need not to be linked to spot prices by any direct arbitrage relationship. We test the implications of this notion by using data for Panamax size bulk carriers and find that even in informationally efficient markets spot freight rates are highly autocorrelated. In addition, spot and forward freight rates are cointegrated, and the equilibrium is established by spot rates converging to forward rates. An extension of the standard vector error correction model reveals time-variation in the adjustment speed. Overall, our empirical findings suggest that the time series properties of freight rates need to be well understood before investing in ship funds. Another important aspect is whether ship funds should hedge their freight rate exposure in the forward market to reduce the return volatility or whether investors can achieve the same outcome by holding ship funds in a portfolio context.