Capital structure in the airline industry : an empirical study of determinants of capital structure

Abstract

This thesis analyse which company specific factors that affect the capital structure in the airline industry. Our sample consists of 39 airlines from different parts of the world, and data is collected from the last decade. We will use previous empirical studies of capital structure as a reference when interpreting the results from our sample. In the first section of this paper, we will present the airline industry and the main capital structure theories. We are going to use an econometric approach when analysing our data sample. Our dependent variables are the book or the market debt ratio in the two different models. The independent variables consist of company specific factors as: size, profit, growth, tangibility of assets, leasing, financial strength, strategy, ownership situation and transparency. Some interesting findings are that the market model explains 31.1% of the variation in capital structure of airline companies, and that six out of seven independent variables are significant. The book model does only explain 18.5%, and have only one significant variable. This may be explained by the argumentation that the market model are more forward looking than the book model which imply that stakeholders base their decision on the future expectations rather than historical values. Generally, there are many theories that deal with capital structure issues, and we are going to test whether some of them are superior for our sample. Our findings show that none of the mentioned models are able to fully explain the obtained results, which is in line with the common consensus.