Capital Allocation and Ownership Concentration in the Shipping Industry
54 Pages Posted: 17 Feb 2018 Last revised: 9 Jan 2019
Date Written: January 28, 2018
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.
Keywords: Capital Allocation, Corporate Investment, Shipping Firms, Ownership Concentration, Firm Value
JEL Classification: G01, G31, G32, L62, L91
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