Dynamic Approach of Capital Structure of European Shipping Companies

The issue of capital structure of companies is one of the most debated problems of financialmanagement. According to economic theory, capital structure determines the stock market valueof firms and therefore their viability, while one of the most negative result of the crash of 2008 andthe persisting crisis (excess supply in markets of labor and money) is their ongoing steep declineof lending by credit institutions and other sources. In this paper, considering the importanceof the issue and motivated by the conflicting results of previous empirical studies, we attemptthe analysis of capital structure of the European Maritime Enterprises (oceanic shipping).We focus on shipping companies, because of the large volume of funding that demands theirmain operation, due to the intensity of the assets held. The objectives of this research are firstlythe identification of factors that affect the capital structure of European oceanic shipping andsecondly to search for the existence of an ideal - target capital structure ratio. The determinantsof capital structure are examined through static (fixed effect method and FGLS) and dynamic(GMM Methods) econometric models, using data from the financial statements of 32 listedEuropean shipping companies for the period 2005-2010. The results suggest the prevalence ofpecking order theory in our case, while a positive relationship arises between tangible assets andtax benefits (arising from sources other than borrowing) against leverage. Moreover, we observea negative relationship between size or profitability and debt. Our findings contribute to a deeperunderstanding of the decisions taken by European shipping on their capital structure.