Choice of financing and governance structures in transport industry : theory and practice

The purpose of this work is to develop a descriptive theory of corporate finance and corporate governance for the world transport industry. More specifically, we examine the economic, institutional, and industrial factors behind a transportation company’s choice of different financing mechanisms and governance structures (collectively called “financing methods”). This combined treatment of corporate finance and corporate governance is in line with Williamson (1988), who argues that “the supply of a good or service and its governance need to be examined simultaneously”. This is a step further than the traditional approach in corporate finance, which tends to limit its investigation of a firm’s choice of financial structure (i.e., debt vs. equity) in aggregate, with no follow-on inquiry into the resultant governance structure at an individual firm or industry level. The value of the level of aggregation and abstraction in neo-classical financial theory, along with the simplifying assumptions that are usually made, lies in their potential for clarifying difficult analytic issues, but it also rules out important practical considerations which influence financial system form and functions (Neave, 1991).