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Publication Cash flow sensitivities during normal and crisis times: Evidence from shipping

Type

Refereed Article

Year

2016

Author(s)

Wolfgang Drobetz

Rebekka Haller

Iwan Meier

Journal

Transportation Research: Part A

Volume

90

Pages

26-49

Research Area

Ship Finance

Keywords

Maritime financial management, cash flow sensitivities, financial constraints, financial crisis, collateral channel

Abstract

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.

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