Determinants of Capital Structure: Empirical Evidence From Traditional Airlines

Abstract

The purpose of this study is to examine the factors that define capital structure of airlines with traditional business model by taking into account the capital structure theories. In line with this purpose, 31 airline companies, which have continuous financial data during the 2004-2015 period, were examined. Panel data analysis was used as a method in the study. Empirical findings of the study show that traditional airlines operate in line with the Trade-off Theory when determining their long-term debt ratio. In addition, findings of the study indicate that traditional airlines operate in line with the Pecking Order Theory when determining the total debt ratio, which also means that they tend to increase total leverage level.

The Financing Behavior of Airline Companies

“…When the findings of the study are compared with the previous studies in literature (see Kiracı and Aydın, 2018a;Kiracı and Aydın, 2018b), the long-term financing behavior of airlines that are members of global alliances is similar to airlines implementing lowcost business models and traditional business models. Therefore, long-term financing behavior of both airlines that are members of global alliances and airlines that are implementing low-cost and traditional business models are appropriate to the Trade-Off Theory.…”

“…On the other hand, it is observed that the airlines, which have high growth opportunities, non-debt tax shielding and liquidity ratios have a relatively lower liability ratio. When we compare Model 2 findings with other studies in literature (see Kiracı and Aydın, 2018a;Kiracı and Aydın, 2018b), it is seen that the long-term debt behavior of the member airlines of the global alliances is similar to the traditional business model in terms of growth opportunities and firm size. In addition, the longterm debt behavior of the member airlines of the global alliances is similar to that of the traditional business model and low-cost business model in terms of non-debt tax shield and asset structure.…”

“…This indicates that airlines with high liquidity tend to use their existing liquidity instead of using liability. When we compare Model 1 findings with other studies in literature (see Kiracı and Aydın, 2018b), it is seen that the total debt behavior of traditional airlines is like the total debt behavior of member airlines of global alliances. Table 13 shows the results of the second model (Model 2) in which the long-term total debt / total assets were used as dependent variables.…”

“…In addition, the longterm debt behavior of the member airlines of the global alliances is similar to that of the traditional business model and low-cost business model in terms of non-debt tax shield and asset structure. Kiracı and Aydın, 2018b), it is seen that the short-term debt behavior of the member airlines of the global alliances is similar to the traditional business model in terms of firm size, growth opportunities, asset structure, and liquidity ratio. Table 15 shows the comparison of the findings of the models created with the expectation of the signs of capital structure theories.…”

“…When the results of the models are compared with the studies in literature (see Kiracı and Aydın, 2018a;Kiracı and Aydın, 2018b), it is seen that the total debt, long-term debt and short-term debt behavior of the member airlines of global alliances is similar in many respects to airlines with traditional business models. In addition, the longterm debt behavior of the member airlines of the global alliances is similar to not only the airlines applying a traditional business model but also to the airlines applying lowcost business models.…”