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The relationship between technical innovation and financial performance in shipping firms

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Maritime Economics & Logistics Aims and scope

Abstract

This study investigates the relationship between financial performance and technical innovation of 21 listed shipping firms employing a panel data methodology. Using vessel-level and firm-level data over the period 2013 to 2019, we show that vessels’ technical innovation exhibits a positive relationship with firms’ financial performance. We identify three types of technical innovation for listed shipping firms, namely ice-class, eco, and propulsion types, and show that shipping firms operating eco-type ships exhibit higher financial performance on average during the sample period examined. This result has important implications not least on the decision-making of shipping firms to invest in technically innovative ships.

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Notes

  1. According to Clarksons (2021), the average 1, 3, and 5-year time charter hires for double hull Suezmax tankers in 2020 were $27,899, $26,106, and $24,500, whereas the average 1, 3, and 5-year time charter hires for double hull Eco Suezmax tanker for year 2020 were $31,053, $29,197, and $27,788.

  2. Dwt is the deadweight tonnage of a ship.

  3. These criteria are based on previous studies such as Drobetz et al. (2013a, 2019) and Tsouknidis (2019), who examine similar datasets for U.S. listed firms but they do not focus on the relationship between innovation and financial performance.

  4. All U.S. firms have a standard industrial code (SIC) of 4400 (Water Transportation) or the sub-code 4410/4412 (Deep Sea Foreign Transportation of Freight). The SIC 4400 is a parent directory and is described as (URL accessed on 24th October 2020, https://siccode.com/sic-code/44/water-transportation): “This major group includes establishments engaged in freight and passenger transportation on the open seas or inland waters, and establishments furnishing such incidental services as lighterage, towing, and canal operation. This major group also includes excursion boats, sight-seeing boats, and water taxis.” while the SIC 4412 is a sub-directory and is described as (URL accessed on 24th October 2020, https://siccode.com/sic-code/4412/deep-sea-foreign-transportation-freight): “Establishments primarily engaged in operating vessels for the transportation of freight on the deep seas between the United States and foreign ports. Establishments operating vessels for the transportation of freight which travel to foreign ports and to non-contiguous territories are classified in this industry.”

  5. Central index key is the identifier of each U.S. listed shipping firm and is formed by ten-digit numbers provided for each shipping firm by SEC. A ticker is an alphanumeric identifier for a shipping company listed in Oslo stock exchange. We use the ticker to match the vessel level data of the listed Oslo shipping firm with the firm level data for each company in the Thomson Reuters database.

  6. Kavussanos and Tsouknidis (2014) and Panayides et al. (2011) also use a relatively small sample of shipping companies.

  7. Bearish market is defined as the market which is observed by price declines of at least 20% of share prices. Also, BDI fall from 10,245 in June to 743 in December 2008. BDI is a macro-variable used to assess the condition of the shipping freight markets. From that time, BDI keeps remaining at low level and the shipping freight markets remain in trough conditions (Tae-Hwee Lee and Leung Yip 2018; Yin et al. 2018) indicating the low liquidity and economic stagnation of the shipping freight markets.

  8. No vessel was identified with two or three types of technical innovation simultaneously.

  9. Fleet is the ships owned by a shipping firm measured in number or deadweight tonnage for each year.

  10. \({\text{NO}}_{x}\) means nitrogen oxide and is a chemical compound of oxygen and nitrogen. \({\text{SO}}_{x}\) means sulfur oxide.

  11. Scrubbers are used by ships for limiting air pollution by removing sulfur oxides from the ship’s engine and boiler exhaust gases. This regulation came into force on 1st January 2020 by IMO. The limit of sulfur is 0.50% globally.

  12. For each year from 2013 to 2019, we identify each ship for each shipping firm owns that is ‘eco’ type. For example, in the SEC Form 20F of Tsakos energy navigation with CIK 0001166663 we see that the ship with the name ULYSSES is referred as ECO VLCC design.

  13. For assessing presence of endogeneity during model estimation of panel data we use control variables. The use of control variables and time fixed effects avoid possible reverse causality and omitted variables bias in the model (Coles et al. 2012; Lee et al. 2014; Roberts and Whited 2013).

  14. The mean values of the control variables used in our paper are very close to the ones obtained by studies which examine similar time periods (see, for instance, Drobetz et al. 2013a, 2019; Tsouknidis 2019).

  15. The establishment date of each firm is collected through each firm’s webpage and double-checked through its financial statements.

  16. ClarkSea freight rate earnings are computed by Clarksons Shipping Intelligence Network (SIN) by collecting the daily freight rate earnings from each shipping route less: 1. port fees, adjusted for different currency exchange quotations and total commissions, 2. cost of bunkers. Then, the result is divided by the voyage days to calculate earnings per day for each ship type. More information can be found in Annexes 1–4 of the Clarksons (2020) “Sources & Methods for the Shipping Intelligence Weekly”.

  17. Panel data regressions have been widely followed in the shipping finance literature, see for instance Kavussanos and Tsouknidis (2014, 2016).

  18. Coefficients of VIF for each independent variable are computed using the following formula \(VIF = \frac{1}{{1 - R_{i}^{2} }}\). \((R_{i}^{2}\) is the coefficient of determination). VIF result of more than 10 indicate high collinearity namely, there is a linear combination among regressors.

  19. To preserve space, we do not report these results. They are available from the authors upon request.

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Acknowledgements

We would like to thank the Editor-in-Chief and two anonymous referees for their insightful comments and suggestions.

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Authors and Affiliations

  1. Department of Shipping, Faculty of Management and Economics, Cyprus University of Technology, 115 Spyrou Araouzou Str., P.O. Box 50329, 3036, Limassol, Cyprus

    Andreas A. Kouspos & Photis M. Panayides

  2. Department of Accounting and Finance, Athens University of Economics and Business, Athens, Greece

    Dimitris A. Tsouknidis

Authors
  1. Andreas A. Kouspos
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  2. Photis M. Panayides
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  3. Dimitris A. Tsouknidis
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Correspondence to Photis M. Panayides.

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Appendix

Appendix

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Table 5 List of shipping firms for data period between 2013 and 2019
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5 and Fig. 

Fig. 5
figure 5

An excerpt from the fleet of Ardmore shipping Inc. for 31st of December 2018. Note This figure shows an excerpt from the fleet of U.S. listed shipping firm Ardmore shipping Inc. for the year ended 31 December 2018. It includes ships that exhibit technical innovation, for example the Ardmore Seavaliant is an eco-design vessel

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5.

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Kouspos, A.A., Panayides, P.M. & Tsouknidis, D.A. The relationship between technical innovation and financial performance in shipping firms. Marit Econ Logist 25, 698–727 (2023). https://doi.org/10.1057/s41278-022-00251-9

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