Innovative financing for a sustainable shipping industry

The shipping industry, like many others, is under growing pressure to be more sustainable, in terms of environmental and structural considerations. This entails significant funding requirements to meet regulatory and other demands. Traditonally ship financing has been done on a secured basis with relatively few sustainability considerations. This approach is ripe for innovation, considering the industry's big environmental footprint, and it must also work for ship owners, operators and funding providers. Evidence from other industries suggests that borrowers could benefit in pricing and structure from sustainability oriented borrowing, such as green bonds (where proceeds are dedicated to environmental and social investment). The purpose of this investigation is to present and analyse an initial literature review on the topic, in anticipation of carrying out a survey of a sample of vessel registry, to determine perceptions and refine desirable characteristics of sustainable ship financing. The results of this work can act as a wider template for green ship financing recommendations and practice. This would be promoted to industry participants (on both shipping and finance sides) and policy makers, and also be disseminated in industry and academic publications. Green financing continues to grow in investor interest and new applications. While a large part up to now has been devoted to renewable energy, a growing segment is that of transport, particularly motor vehicles. The shipping industry, a globally significant activity, generates pollutants through fuel consumption and sea contamination. In contrast to some other industries, relatively little attention has been paid up to now to promoting the environmental sustainability of this vital service. Regulations have been adopted which mandate limits on marine pollution caused by shipping, but further progress needs to be made

Cost of capital, returns and leverage: empirical evidence from the S&P 500

Expected Returns, Actual Returns, and Leverage: Empirical Analysis of the S&P 500, 2006-2015 ABSTRACT Purpose The theoretical construct of the weighted average cost of capital (WACC), which uses an expected equity return, suggests that lower WACC, often facilitated by use of debt, should result in commensurate returns to shareholders, and higher shareholder value, that is if management is adept at investing in projects yielding returns at or above the WACC. In other words, finding good projects ought to be made easier by a lower hurdle rate on investment, thus translating into returns comparable to or above the WACC, and higher valuations. Is this actually the case? Does the relation between WACC, actual returns, and financial leverage also hold, as predicted, where higher leverage should result in lower WACC, and higher actual returns? Methodology This brief study looks at performance and valuation (total equity market returns to shareholders, and market values, on an annual basis) of S&P 500 companies over a recent ten year period (2006-2015), versus valuations implied by price to book ratios and WACC based on firm leverage. We compare theoretical valuations with the actual, and note variations year on year, but greater similarity over a longer time frame. Regression analysis is performed on these shareholder returns and valuations versus equity cost of these companies as computed using the Capital Asset Pricing Model (CAPM) and Bloomberg data. Another regression is run on WACC versus financial leverage (net debt to market capitalisation) for the same sample. Findings The study finds mixed evidence that expected return on equity, regarded as a benchmark for shareholder returns, was commensurate with actual returns and valuations on average over the time frame. R squared is low, but the analysis has significance. While the S&P 500 earned an annual total shareholder return of 11.8% over the period. and average cost of equity was 10.8%, there is a negative relation between values predicted by WACC and the actual ones. Implications This result leads us to look for other explanations as to why this should be. These include management capabilities, target capital structure and time horizon. We make suggestions for further research, encompassing different and wider samples

Bank profitability: liquidity, capital and asset quality

Article exploring relationship of banks' profitability to their liquidity holdings, capital and asset quality

Behavioral finance and implications for regulation: China’s stock market

In regulation of financial services, supervisory authorities have relied to a great extent on theoretical models developed in academia and applied to the often less predictable world of financial markets. The theory typically assumes that investors are rational, whereas countless empirical studies indicate that often the reverse is true. This short exposition argues that regulators should take greater account of the many human behavioural factors affecting investment decisions, and uses the Chinese “equity mania” of 2015 as an example. A classic case of an asset bubble, this ultimately destructive phenomenon was facilitated by the authorities, who loosened regulations in an ill-advised effort to boost domestic investment. Classic examples of irrational behavioral heuristics on the part of investors, who were largely made up of poorly educated individuals, were manifested in this bubble, repeated so often throughout the world and over the centuries. These include errors of framing, overconfidence, hindsight and confirmation, as well as herding errors. The value destruction witnessed in the Chinese example emphasises the need to try and incorporate behavioural errors into forward thinking regulation; for example, as retail dominated, debt fuelled investment rises, this would be the time to place more controls on margin lending, rather than reducing them. Ongoing analysis of such events, and implementation of lessons learned, thus have important implications for public policy in financial services, the overriding aim of which should be financial stability

Moorad Choudhry's Anthology [Book review]

A review of an anthology of works by finance and banking scholar and practitioner Prof Moorad Choudhry, ranging from ALM to corporate governanc

Credit risk and ALM

Recommendations for structuring the asset liability management process to incorporate credit risk in a ban

Corporate governance and performance of Saudi banks: 2010-2015

The abstract summarizes an examination of the Saudi banking system, from 2010-2015. It draws a relationship between return on equity and corporate governance indicators, including board size, number of committees and independent directors. A positive link is observed between performance and baord size

Strategic human resources and corporate governance in banking

The importance of human and corporate governance, crucial to all serious undertakings, is particularly critical in the fields of finance and business. Banks and other financial institutions play a key role in a nation’s economy, and also have global implications for growth and prosperity. The abuses of the financial system, vividly illustrated in the 2008 crisis, reinforce the need for improved conduct and corporate governance among financial institutions, in which the Human Resources (HR) function, by virtue of its expertise, should play an enhanced and influential part. This summary paper argues for a strengthening of the HR position, emphasising greater independence and more elevated reporting lines. It is the HR experts who should know better than most management in a bank which human foibles contribute to abuse of the system and how to mitigate them. In this way banks can more quickly win back the public trust they have lost in large measure