Abstract
The technology to liquefy natural gas for transport to countries worldwide and the increasing use of natural gas as a cleaner fossil fuel for industry and household meant that the supply of liquified natural gas (LNG) worldwide is a profitable trend. Shipping companies can strategically choose to diversify into LNG fleet to grasp this trend. By supplying more LNG shipping capacities, the greater availability of LNG worldwide, as a source of marine fuel and as a source of cleaner energy in replacing coal and oil, is supporting eco-innovation. In this paper, we investigate three economic and financial benefits to a shipping firm that diversified into liquefied natural gas (LNG) shipping, namely firm profitability performance, firm efficiency, and stock return performance. We also investigate if there is an early mover advantage in doing so. Our empirical findings indicate that fleet diversification into LNG carriers resulted in higher profitability and better operational efficiency. For the listed shipping firms, their stock returns increased with diversified exposures to the LNG business. There is some evidence of higher profitability in the early mover advantage. Firms that originated in LNG business also benefited when there was diversification into the non-LNG business.
Highlights
In the past, the transport of natural gas was limited to the availability of pipelines
Our approach in this investigation draws upon a wide range of literature by using insights from the eco-innovation literature on firm capabilities, the ecological economics literature on environmental regulation, the energy literature on marine fuel, the transportation literature on liquefied natural gas (LNG), the strategic management literature on corporate social responsibility (CSR), as well as the financial management literature on socially responsible investing (SRI)
We focus on the profitability ratio defined as the amount of pre-tax income divided by total assets (‘return on assets’) as our key performance measure
Summary
The transport of natural gas was limited to the availability of pipelines. Considering the fleet composition is imperative because for a firm to embark on an eco-innovation strategy, there is an atypically switch from an existing pool of heavy liquid-fuel powered carriers and oil tankers to one that includes newer LNG powered engines and LNG carriers Our approach in this investigation draws upon a wide range of literature by using insights from the eco-innovation literature on firm capabilities, the ecological economics literature on environmental regulation, the energy literature on marine fuel, the transportation literature on LNG, the strategic management literature on corporate social responsibility (CSR), as well as the financial management literature on socially responsible investing (SRI). We state Hypothesis 1 as follows: Hypothesis 1: Increased investment in LNG carriers (supporting Eco-innovation) has a positive effect on the shipping firm profitability. The industry fixed effect is imposed here. 4 ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels respectively. t-values are in parentheses
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