Utilizing the distance to default index for credit risk analysis within the shipping industry

Abstract

As it is widely known, the shipping industry is undoubtedly a highly capital intensive industry since it requires and relies on huge amounts of investment capital. Thus, we decided to work on this topic, as we strongly believe that Credit Risk Management is of utmost importance for all the stakeholders related to shipping, especially for banks, ship owning companies, investors and finally charterers. In more detail, we analyzed micro, sector related and macro panel data of 43 stock exchange listed shipowning companies across 12 years (2007-2018) in order to determine whether and which of the above mentioned factors explain and affect the Distance to Default metric. The findings of our analysis highlight the fact that according to our baseline model, micro data extracted from the financial reports of the individual shipowning companies are not statistically significant, whereas sector specific and macro related variables play a role and affect the risk of default in the shipping sector.