Determinants of Airlines’ Capital Structure during the Covid-19 pandemic

Abstract

This study analyzes the impact of the variables: profitability, size, interest rate, and value of collateral assets on the American commercial passenger airline industry’s capital structure during the Covid-19 pandemic. Further, it examines how the results stand in relation to the established capital structure theories’, the trade-off and pecking order, predictions of impact, and explores reasoning for the outcomes. The quantitative study has a deductive method and uses statistical regression models to find that there is a significant correlation between the dependent variable capital structure and the independent variables profitability, size, and collateral value of assets, but no correlation with the variable interest rate. The results confirm that the variables profitability and collateral value of assets have a negative correlation to capital structure, and size has a positive correlation during the Covid-19 pandemic. Further, limitations to both the trade-off and the pecking order theory are found after analyzing the results and it is suggested to revise the models by adding limitations of applicability. The study claims a degree of generalizability and uses the results as well as evidence from earlier studies to reason and draw conclusions about not only the Covid-19 pandemic, but other financial crises. Conclusions such as limitations to both the pecking order theory and the trade-off theory when a crisis occurs are presented.