The influence of maritime freight cost tail risk on publicly traded transport companies

Abstract

This study examines the influence of maritime freight cost tail risk events on transportation-related stock market prices. Our findings reveal a significant asymmetry: extreme negative movements in these indices have a disproportionately large adverse impact on stock returns compared to extreme positive movements. As these indices serve as barometers of global economic health, sharp declines signal contractions in global demand, fuelling investor apprehension. These concerns outweigh the potential benefits of lower input costs for most firms. We also uncover substantial heterogeneity amongst stock responses. Notably, owing to their perceived higher risk, smaller firms and those with ESG controversies are more severely impacted by these negative tail-risk events. Further, we also find that strong ESG commitments are sometimes beneficial during negative tail risk events, but not always. We attribute the observed detrimental effects of strong ESG commitments to heightened investor concern about the additional operational costs and regulatory compliance required to meet these commitments during challenging market conditions. Our results suggest companies take proactive steps to address investor concerns about the cost of ESG commitments. By doing so, companies can ensure that their pursuit of sustainability and responsibility does not conflict with their financial objectives and market resilience.