Institutional performance and ship registration

• This paper introduces the net flag-out ratio, accounting for ship flagging-out and for ship flagging-in.
• It examines, for the first time, the contribution of corruption and institutional measures as decisive factors in flag choice.
• We find that institutional factors do not explain the traditional flag-out measure but determine the net flag-out ratio.
• A country’s tax system, the ease of starting new business and the country’s corruption/transparency level determine the net flag-out ratio.
• A high level of transparency and of institutional performance and friendliness to business can maintain nationally owned ships and attract foreign owned ships under the national flag.

The paper introduces a new concept in ship registration, the net flag-out ratio (in contrast to the standard flag-out ratio) and examines the potential contribution of metrics of corruption and institutional measures as decisive factors in explaining flag choice. Context-related factors are also controlled and included in the study. The study uses a cross-sectional, multiple regression econometric approach. Focusing on a sample of the 33 largest ship owning countries, we find that institutional factors do not explain the traditional flag-out measure but determine the net flag-out ratio. Our findings indicate a potential effect of institutional performance/environment on ship registration.