Optimal Capital Structure of Norwegian Dry Bulk Shipping Companies. The effect of the life cycle and development in determining factors.

Abstract

This thesis focus on the optimal capital structure of Norwegian dry bulk shipping companies and its determining factors. The research concerns whether the stage of the life cycle of dry bulk shipping companies affects its optimal capital structure, how optimal capital structure can be attained, as well as if the determining factors of optimal capital structure have changed over the past 20 years. The noteworthy characteristics of the market are subject to deeper elaboration. As follows, the thesis accounts for subjects such as differences in the submarkets, drivers of supply and demand, the essence of the cyclicality and profitability in the industry, how to manage the risk, as well as the different financing options available. To conduct the analysis, accounting data on the forty largest dry bulk companies in Norway are gathered from Proff Forvalt. The time span on the dataset stretches from 1998-2018 which allows us to take into account the market cyclicality when analysing the data. Additional data are gathered from Bloomberg and Eikon. The following analysis is conducted in Excel and Stata using financial calculations and regression analyses. The study was based on theory on life cycle stages including the univariate method, the comprehensive index method and the cash flow combination method. The capital structure analysis was then based on the tradeoff theory, the pecking order theory and empirically proven determining factors of capital structure. The analysis of the influence of life cycles on capital structure presented ambiguous results. There were high fluctuations and no clear pattern. Therefore, we rejected the first hypotheses and concluded that the life cycle does not influence the capital structure of Norwegian dry bulk shipping companies. The analysis of the optimal capital structure of the companies found that several measures other than just the weighted average cost of capital have to be taken into account. Therefore, the second hypothesis was rejected as well. At last, a set of determining factors on capital structure is assessed to test if these have changed over the years. Several time periods were analysed to adjust for market cycles. The hypothesis was partly true as some of the determining factors have changed, but there are also indications that the focus might have shifted towards other factors over the years.