The Giant's Pull: How Macroeconomic Conditions in China Explain Leverage Decisions in Thailand's Shipping SMEs

This paper investigates economic policy uncertainty (EPU) which has been neglected in prior literature on the shipping industry. We find that EPU in China plays an important role in determining the leverage decisions of Thailand's shipping industry. When EPU increases, companies may achieve higher growth and subsequent leverage resulting from opportunities in uncertainty. Contrary to previous literature, the GDPs of Thailand and China exert a smaller influence on leverage than EPU. Further, interest spread in Thailand, though directly affecting the cost of borrowing, has a positive association with leverage decisions. Shipping SMEs may use the spread when deciding to take on greater risk and exploit growth opportunity. Through deeper analysis, we find that the leverage decisions of dry bulk companies are more sensitive to Chinese and Thai macroeconomic factors than those of tanker firms. Our findings call for policymakers to support the increasing bilateral trading, shipping, and financing between Thailand and China.