Journal of Navigation and Port Research (한국항해항만학회지)

Korean Institute of Navigation and Port Research (한국항해항만학회)
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Fixed Versus Floating Interest Rates in Shipping Finance: A Behavioral Finance Perspective

  • Kim, Wu-Seok (Graduate School of National Korea Maritime and Ocean University)
  • Received : 2021.05.24
  • Accepted : 2021.10.26
  • Published : 2021.10.31
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Abstract

This study analyzed the decision-making process in ship finance for the choice between fixed and floating interest rates using behavioral finance theories. Results confirmed that causes and background of decision-making processes could be explicitly explained by the framework of behavioral finance theories. This study also determined whether decisions were irrational. A case-study research was applied as the methodology. Decision-making data on ship finance collected through narrative and questionnaire responses were analyzed and evaluated using behavioral finance theories. Theories of behavioral finance used in the analysis and research of this study included availability heuristic, anchoring effect, and opportunity cost theory. Narrative and survey responses were clearly explained by theories of behavioral finance. It was found that a shipping company suffered additional losses owing to decisions that included behavioral finance errors. Behavioral finance theories largely influenced the decision-making process of choosing between a fixed interest rate and a floating interest rate. Shipping finance decisions related to interest rate selections could be clearly explained by behavioral finance theories. Errors related to behavioral finance could result in irrational decisions. Thus, managers who are responsible for shipping finance should remain vigilant toward any behavioral finance errors when making shipping finance decisions.

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References

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