Abstract
The maritime industry is one of those rare industries that are both highly international integrated to international trade and also highly capital intensive dependent on substantial investment amount. In the literature, ship investments have not been widely examined through the firm-level investment theories to explore the link between investment level and asset price valuation. The general trend in the literature of ship investments is to analyse the relationship among the shipping markets (newbuilding, second-hand, freight rate and scrap) and their impact on asset price valuation, the timing of investments and market entry and exit conditions. In this paper, we extensively reviewed the literature of firm-level investment theories and ship investments. We showed that the application of firm-level investment theories to the ship investments is confined to the basic investment valuation models, such as Net Present Value and Real Option Analysis. Ship investments need to be examined by firm-level investment theories to define firm/industry value maximization level within the approach of the solid investment theories.
Highlights
Business investments in the fixed capital have a crucial role in a nation’s industrial and economic growth
The link between maritime industry and the economy has been emphasised by researchers (Harlaftis and Kostelenos 2012; Kang et al 2016), and Cheng (1979) notes that the maritime transportation can be seen as a phase of production which is indispensable to economic progress
The review of the five major firm-level investment theories, provided highlights that most of the investment theories deal with determinants of investments under the assumptions of either instantaneous adjustment or distributed lag structure which is not related to any optimisation process
Summary
Business investments in the fixed capital have a crucial role in a nation’s industrial and economic growth. There is an empty field in the literature to be filled regarding the interpretation of investors’ decision on ships whether new or second-hand and ship price valuation in the market with the application of firm-level investment theories. Ship investments in the literature started receiving increasing attention by researchers from the 1950s as a consequence of data availability and the role of shipping during globalisation This inference brings the question which as to why the shipping industry has been absent from mainstream research in economics and economic history, despite having a very long and fascinating contribution in the world history (Paine 2014). This paper provides a critical review of the five main firm-level investment theories and the literature on ship investments.
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