The Limits of Coase: A Study of Financial Distress in the Shipping Industry

67 Pages Posted: 7 Dec 2016 Last revised: 26 Apr 2024

See all articles by Julian R. Franks

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Gunjan Seth

Marshall School of Business - University of Southern California

Oren Sussman

European Corporate Governance Institute (ECGI)

Vikrant Vig

London Business School

Date Written: May 1, 2017

Abstract

The shipping industry provides a unique laboratory for examining the limits of Coase for resolving financial distress since the industry is largely detached from sovereign bankruptcy procedures. We find that private contracts and institutions have evolved to resolve coordination failures: for example, we find a low incidence of vessel seizures, ports that compete to enforce creditor rights, and small fire sale discounts. However, we report significant spillovers of financial distress for other stakeholders, particularly environmental, who bear the costs of under maintained vessels, including oil spills, and abandonment of derelict ships, which end up in toxic breaker yards.

Keywords: ESG, Oil Spills, Bankruptcy, Freedom of Contracting, Fire Sales

JEL Classification: G33, L33, G23

Suggested Citation

Franks, Julian R. and Seth, Gunjan and Sussman, Oren and Vig, Vikrant, The Limits of Coase: A Study of Financial Distress in the Shipping Industry (May 1, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 505/2017, Available at SSRN: https://ssrn.com/abstract=2880751 or http://dx.doi.org/10.2139/ssrn.2880751

Julian R. Franks

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3449 (Phone)
+44 20 7724 3317 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: https://ecgi.global/

Gunjan Seth

Marshall School of Business - University of Southern California ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www.gunjanseth.net

Oren Sussman

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Vikrant Vig (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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