The Determinants of Capital Structure in Shipping Companies. Case Studies of Broström And Concordia AB.

Abstract

This thesis deals with problem concerning capital structure in shipping companies. Various capital structure theory perspectives such as agency, financial distress, and pecking order are reviewed in order to formulate arguments concerning the levels of debt and equity in shipping companies. Those issues are illustrated by two theoretical models, the trade-off model and the pecking order hypothesis. Along with those models, we will present the Square Model that was set up by Professor Thomas Polesie in 1991 regarding financial structure in relation to economic operations of a company. We have studied two Swedish companies within the shipping industry due to comparable issues. We decided to choose Broström, an independent company, and Concordia AB, a member company of Stena Lines Group, which both operate in tanker transportation, for our case studies. We examined how Broström and Concordia decide on their capital structure and which factors were taken into account in their decisions on capital structure. These two companies have a different financial structure, in which Broström has a larger debt proportion and Concordia uses more equity. We have analyzed some relevant factors that determined the company’s capital structure in order to answer the question why the two companies operate in more or less the same business area but are pursuing a different capital structure. The main differences of the two companies are business and financial risks, and management attitude.