Working Paper: NBER ID: w28971
Authors: Murillo Campello; Gaurav Kankanhalli; Hyunseob Kim
Abstract: We show how uncertainty shapes corporate asset allocation, composition, and productivity using data from the shipping industry. Firms curtail both ship acquisitions and disposals when uncertainty increases, primarily through cuts in new ship orders and ship demolitions—decisions that are costlier to reverse vis-à-vis secondary market transactions. Uncertainty also prompts firms to concentrate their fleets into narrower, less productive portfolios. We corroborate our findings using the 2009-2011 spike in Somali pirate attacks as an uncertainty shock to shipping activity. Uncertainty hampers “creative destruction,” slowing both the adoption of innovation embodied in new capital and the disposal of old capital.
Keywords: Uncertainty; Asset Allocation; Productivity; Shipping Industry
JEL Codes: D22; D25; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| heightened uncertainty (D89) | significant reduction in investment activities (G31) |
| heightened uncertainty (D89) | significant reduction in disinvestment activities (O16) |
| illiquid secondary markets (G19) | decline in investment (E22) |
| heightened uncertainty (D89) | reduced productivity and firm value (D25) |
| heightened uncertainty (D89) | pronounced decline in new ship orders (D25) |
| improved returns from forward freight agreements (G19) | increase in investment (E22) |