Factors that Determine the Capital Structure: An Empirical Study on Low-cost Airlines

Open access


The purpose of this study is to identify the factors that determine the capital structure of low-cost airlines. Accordingly, it is aimed to test the factors that determine the capital structure in low-cost airlines in the context of capital structure theories. In the study, 15 airline companies, which had continuous financial data during the 2004-2015 period, were examined empirically. Panel data analysis was used as a method in the study. Findings of the study show that low-cost airlines generally operate based on the trade-off theory while borrowing in the short-term and based on the pecking order theory while borrowing in the long-term.

Ahmad, F., Juniad-ul-Haq, Nasir, R. U., Ali, M., and Ullah, W., 2011. Extension of Determinants of Capital Structure: Evidence from Pakistani Non-Financial Firms. African Journal of Business Management, 5(28), 11375-11385. doi http://dx.doi.org/10.5897/AJBM11.218

Ajanthan, A., 2013. Determinants of capital structure: Evidence from hotel and restaurant companies in Sri Lanka. International Journal of Scientific and Research Publications, 3(6), 1-8.

Akhtar, S., 2005. The determinants of capital structure for Australian multinational and domestic corporations. Australian Journal of Management, 30(2), 321-341. doi http://dx.doi.org/10.1177/031289620503000208

Antonczyk, R. C., and Salzmann, A. J., 2014. Overconfidence and optimism: The effect of national culture on capital structure. Research in International Business and Finance, 31, 132-151. doi http://dx.doi.org/10.1016/j.ribaf.2013.06.005

Antoniou, A., Guney, Y., and Paudyal, K., 2008. The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions. Journal of Financial and Quantitative Analysis, 43(01), 59-92. doi http://dx.doi.org/10.1017/S0022109000002751

Arsov, S., and Naumoski, A., 2016. Determinants of capital structure: An empirical study of companies from selected post-transition economies. Journal of Economics and Business, 34(1), 119-146. doi http://dx.doi.org/10.18045/zbefri.2016.1.119

Bancel, F., and Mittoo, U. R., 2004. Cross-Country Determinants of Capital Structure Choice: A Survey of European Firms. Financial Management, 33(4), 103-132.

Bandyopadhyay, A., and Barua, N. M., 2016. Factors determining capital structure and corporate performancein India: Studying the business cycle effects. The Quarterly Review of Economics and Finance, 61(august), 160-172. doi http://dx.doi.org/10.1016/j.qref.2016.01.004

Bauer, P., 2004. Determinants of capital structure: Empirical evidence from the Czech Republic. Czech Journal of Economics and Finance, 54(1-2), 2-21.

Baxamusa, M., and Jalal, A., 2014. Does religion affect capital structure? Research in International Business and Finance, 31, 112-131. doi http://dx.doi.org/10.1016/j.ribaf.2013.09.003

Bhaduri, S. N., 2002. Determinants of capital structure choice: a study of the Indian corporate sector. Applied Financial Economics, 12(9), 655-665. doi http://dx.doi.org/10.1080/09603100010017705

Bhaird, C. m., and Lucey, B., 2010. Determinants of capital structure in Irish SMEs. Small Business Economics, 35(3), 357-375. doi http://dx.doi.org/10.1007/s11187-008-9162-6

Bontempi, M. E., 2002. The dynamic specification of the modified pecking order theory: Its relevance to Italy. Empirical Economics, 27(1), 1-22. doi http://dx.doi.org/10.1007/s181-002-8356-9

Booth, L., Aivazian, V., Demirguc-Kunt, A., and Maksimovic, V., 2001. Capital Structures in Developing Countries. The Journal of Finance, 56(1), 87-130. doi http://dx.doi.org/10.1111/0022-1082.00320

Burucu, H., and Ondes, T., 2015. Finansal Hiyerarsi ve Dengeleme Teorisinin Gecerliliginin Turk Imalat Sanayi Firmalarinda Test Edilmesi. Sakarya İktisat Dergisi, 4(3), 61-76.

Cento, A., 2009. The Airline Industry: Challenges in the 21st Century. Segrate: Physica-Verlag.

Chakraborty, I., 2010. Capital structure in an emerging stock market: The case of India. Research in International Business and Finance, 24(3), 295-314. doi http://dx.doi.org/10.1016/j.ribaf.2010.02.001

Chang, C., Chen, X., and Liao, G., 2014. What are the reliably important determinants of capital structure in china? Pacific-Basin Finance Journal, 30, 87-113. doi http://dx.doi.org/10.1016/j.pacfin.2014.06.001

Chen, J. J., 2004. Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351. doi http://dx.doi.org/10.1016/S0148-2963(03)00070-5

Colombo, E., 2001. Determinants of corporate capital structure: evidence from Hungarian firms. Applied Economics, 33(13), 1689-1701. doi http://dx.doi.org/10.1080/00036840010015057

Cotei, C., and Farhat, J., 2009. The trade-off theory and the pecking order theory: Are they mutually exclusive? North American Journal of Finance and Banking Research, 3(3), 1-17.

Crnigoj, M., and Mramor, D., 2009. Determinants of Capital Structure in Emerging European Economies: Evidence from Slovenian Firms. Emerging Markets Finance & Trade, 45(1), 72-89. doi http://dx.doi.org/10.2753/REE1540-496X450105

de Jong, A., Kabir, R., and Nguyen, T. T., 2008. Capital structure around the world: The roles of firm- and country-specific determinants. Journal of Banking & Finance, 32(9), 1954-1969. doi http://dx.doi.org/10.1016/j.jbankfin.2007.12.034

de Jong, A., Verbeek, M., and Verwijmeren, P., 2011. Firms’ debt-equity decisions when the static tradeoff theory and the pecking order theory disagree. Journal of Banking & Finance, 35(5), 1303-1314. doi http://dx.doi.org/10.1016/j.jbankfin.2010.10.006

de Miguel, A., and Pindado, J., 2001. Determinants of capital structure: New evidence from Spanish panel data. Journal of Corporate Finance, 7(1), 77-99. doi http://dx.doi.org/10.1016/S0929-1199(00)00020-1

Deesomsak, R., Paudyal, K., and Pescetto, G., 2004. The determinants of capital structure: Evidence from the Asia Pacific region. Journal of Multinational Financial Management, 14(4-5), 387-405. doi http://dx.doi.org/10.1016/j.mulfin.2004.03.001

Delcoure, N., 2007. The determinants of capital structure in transitional economies. International Review of Economics & Finance, 16(3), 400-415. doi http://dx.doi.org/10.1016/j.iref.2005.03.005

Demirhan, A., 2009. Bankaların sektörel paylarindaki değişimin nitel bağımlı değişkenli panel veri modeliyle analizi. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Dergisi-Yönetim, 20(64), 78-97.

Dincergok, B., 2010. Sermaye Yapisini Etkileyen Faktorlerin Mukayeseli Incelemesi. Ankara: Gazi Universitesi.

Doganis, R., 2006. The Airline Business. Abingdon: Taylor & Francis Group.

Erol, A. F., Aytekin, S., and Abdidoglu, N., 2016. Isletmelerin Sermaye Yapilarinin Belirlenmesinde Finansal Hiyerarsi Teorisinin Kullanimi ve BIST’te Bir Uygulama. KSÜ Sosyal Bilimler Dergisi, 13(1), 113-128.

Fama, E. F., and French, K. R., 2002. Testing trade-off and pecking order predictions about dividends and debt. Review of Financial Studies, 15(1), 1-33. doi http://dx.doi.org/10.1093/rfs/15.1.1

Fattouh, B., Harris, L., and Scaramozzino, P., 2008. Non-linearity in the determinants of capital structure: Evidence from UK firms. Empirical Economics, 34(3), 417-438. doi http://dx.doi.org/10.1007/s00181-007-0128-3

Forte, D., Barros, L. A., and Nakamura, W. T., 2013. Determinants of the Capital Structure of Small and Medium Sized Brazilian Enterprises. BAR - Brazilian Administration Review, 10(3), 347-369. doi http://dx.doi.org/10.1590/S1807-76922013000300007

Fosu, S., 2013. Capital structure, product market competition and firm performance: Evidence from South Africa. The Quarterly Review of Economics and Finance, 53(2), 140-151. doi http://dx.doi.org/10.1016/j.qref.2013.02.004

Frank, M. Z., and Goyal, V. K., 2003. Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. doi http://dx.doi.org/10.1016/S0304-405X(02)00252-0

Frank, M. Z., and Goyal, V. K., 2009. Capital Structure Decisions: Which Factors Are Reliably Important? Financial Management, 38(1), 1-37. doi http://dx.doi.org/10.1111/j.1755-053X.2009.01026.x

Giannetti, M., 2003. Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices. Journal of Financial and Quantitative Analysis, 38(1), 185-212. doi http://dx.doi.org/10.2307/4126769

Gomez, G., Mena Rivas, A. M., and Lizarzaburu Bolaños, E. R., 2014. The determinants of capital structure in Peru. Academia (Caracas), 27(3), 341-354. doi http://dx.doi.org/10.1108/ARLA-01-2014-0007

Gropp, R., and Heinder, F., 2010. The Determinants of Bank Capital Structure. Review of Finance, 14(4), 587-622. doi http://dx.doi.org/10.1093/rof/rfp030

Guler, S., 2010. Istanbul menkul kiymetler borsasina (IMKB) kayitli kucuk ve orta buyuklukteki isletmelerin (Kobi) sermaye yapilari uzerine bir uygulama. Süleyman Demirel Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 15(3), 353-371.

Guzhvaa, V. S., and Pagiavlas, N., 2003. Corporate capital structure in turbulent times: A case study of the US airline industry. Journal of Air Transport Management, 9(6), 371-379. doi http://dx.doi.org/10.1016/S0969-6997(03)00020-6

Handoo, A., and Sharma, K., 2014. A study on determinants of capital structure in India. IIMB Management Review, 26(3), 170-182. doi http://dx.doi.org/10.1016/j.iimb.2014.07.009

Hanlon, P., 2007. Global Airlines: Competition in a transnational industry. Burlington: Elsevier Ltd.

Hovakimian, A., Hovakimian, G., and Tehranian, H., 2004. Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517-540. doi http://dx.doi.org/10.1016/S0304-405X(03)00181-8

Hovakimian, A., Kayhan, A., and Titman, S., 2012. Are Corporate Default Probabilities Consistent with the Static Trade-off Theory? Review of Financial Studies, 25(2), 315-340. doi http://dx.doi.org/10.1093/rfs/hhr101

Huang, G., and Song, F. M., 2006. The determinants of capital structure:Evidence from China. China Economic Review, 17(1), 14-36. doi http://dx.doi.org/10.1016/j.chieco.2005.02.007

Joeveer, K., 2013. Firm, country and macroeconomic determinants of capital structure: Evidence from transition economies. Journal of Comparative Economics, 41(1), 294-308. doi http://dx.doi.org/10.1016/j.jce.2012.05.001

Karadeniz, E., Yilmaz Kandir, S., Balcilar, M., and Beyazit Onal, Y., 2009. Determinants of capital structure: Evidence from Turkish lodging companies. International Journal of Contemporary Hospitality Management, 21(5), 594-609. doi http://dx.doi.org/10.1108/09596110910967827

Kayo, E. K., and Kimura, H., 2011. Hierarchical determinants of capital structure. Journal of Banking & Finance, 35(2), 358-371. doi http://dx.doi.org/10.1016/j.jbankfin.2010.08.015

Keefe, M. O., and Yaghoubi, M., 2016. The influence of cash flow volatility on capital structure and the use of debt of different maturities. Journal of Corporate Finance, 38(1), 18-36. doi http://dx.doi.org/10.1016/j.jcorpfin.2016.03.001

King, M. R., and Santor, E., 2008. Family values: Ownership structure, performance and capital structure of Canadian firms. Journal of Banking & Finance, 32(11), 2423-2432. doi http://dx.doi.org/10.1016/j.jbankfin.2008.02.002

Korkmaz, T., Albayrak, A. S., and Karataş, A., 2007. Hisse senetleri İMKB’de işlem gören KOBİ’lerin sermaye yapısının incelenmesi: 1997–2004 dönemi (The Analysis of the Capital Structure of the SMEs Registered in the ISE: 1997-2004). İktisat İşletme ve Finans, 22(253), 79-96. doi http://dx.doi.org/10.3848/iif.2007.253.1548

Lemmon, M. L., Roberts, M. R., and Zender, J. F., 2008. Back to the beginning: Persistence and the cross-section of corporate capital structure. The Journal of Finance, 63(4), 1575-1608. doi http://dx.doi.org/10.1111/j.1540-6261.2008.01369.x

Lopez-Gracia, J., and Sogorb-Mira, F., 2008. Testing trade-off and pecking order theories financing SMEs. Small Business Economics, 31(2), 117-136. doi http://dx.doi.org/10.1007/s11187-007-9088-4

Mazur, K., 2007. The Determinants of Capital Structure Choice: Evidence from Polish Companies. International Advances in Economic Research, 13(4), 495-514. doi http://dx.doi.org/10.1007/s11294-007-9114-y

Michaelas, N., Chittenden, F., and Poutziouris, P., 1999. Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data. Small Business Economics, 12(2), 113-130. doi http://dx.doi.org/10.1023/A:1008010724051

Modigliani, F., and Miller, M. H., 1958. The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.

Moon, J., Lee, W. S., and Dattilo, J., 2015. Determinants of the payout decision in the airline industry. Journal of Air Transport Management, 42, 282-288. doi http://dx.doi.org/10.1016/j.jairtraman.2014.11.009

Myers, S. C., 1984. The Capital Structure Puzzle. The Journal of Finance, 39(3), 575-592. doi http://dx.doi.org/10.2307/2327916

Nazir, M. S., Siddiqui, A., and Nawaz, M. M., 2012. Determinants of capital structure of engineering sector of Pakistan. Actual Problems of Economics, 2(1), 412-420.

Norvaisiene, R., and Stankeviciene, J., 2015. The Interaction of Internal Determinants and Decisions on Capital Structure at the Baltic Listed Companies. The Engineering Economist, 52(2), 7-17.

Nunkoo, P. K., and Boateng, A., 2010. The empirical determinants of target capital structure and adjustment to long-run target: Evidence from Canadian firms. Applied Economics Letters, 17(10), 983-990. doi http://dx.doi.org/10.1080/17446540802599671

Ovtchinnikov, A. V., 2010. Capital structure decisions: Evidence from deregulated industries. Journal of Financial Economics, 95(2), 249-274. doi http://dx.doi.org/10.1016/j.jfineco.2009.10.003

Ozkan, A., 2001. Determinants of Capital Structure and Adjustment to Long Run Target: Evidence from UK Company Panel Data. Journal of Business Finance & Accounting, 28(1-2), 175-198. doi http://dx.doi.org/10.1111/1468-5957.00370

Oztekin, O., and Flannery, M. J., 2012. Institutional determinants of capital structure adjustment speeds. Journal of Financial Economics, 103(1), 88-112. doi http://dx.doi.org/10.1016/j.jfineco.2011.08.014

Pacheco, L., and Tavares, F. A., 2015. Capital structure determinants of Portuguese footwear sector SMEs: Empirical evidence using a panel data. Tekhne (Instituto Politecnico do Cavado e do Ave), 13(2), 145-157. doi http://dx.doi.org/10.1016/j.tekhne.2016.04.002

Palacin-Sanchez, M. J., and di Pietro, F., 2016. The Role of the Regional Financial Sector in the Capital Structure of Small and Medium-Sized Enterprises (SMEs). Regional Studies, 50(7), 1232-1247. doi http://dx.doi.org/10.1080/00343404.2014.1000290

Pattweekongka, S., and Napompech, K., 2014. Determinants of Capital Structure: Evidence from Thai Lodging Companies. The International Journal of the Arts in Society, 7(4), 45-52.

Psillaki, M., and Daskalakis, N., 2009. Are the determinants of capital structure country or firm specific? Small Business Economics, 33(3), 319-333. doi http://dx.doi.org/10.1007/s11187-008-9103-4

Rungani, E., and Fatoki, O., 2010. Determinants of capital structure of Small and Medium Enterprises in the Buffalo City Municipality, Eastern Cape Province, South Africa. African Journal of Business Management, 4(18), 3968-3977.

Sarioğlu, S. E., Kurun, E., and Güzeldere, H., 2013. Sermaye Yapisinin Belirleyicileri: IMKB’de Islem Goren Cimento, Otomotiv ve Bilisim Sektorlerinin Sermaye Yapisi Analizi. Ege Akademik Bakış, 13(4), 481-496. doi http://dx.doi.org/10.21121/eab.2013418082

Sayılgan, G., and Süslü, C., 2011. Makroekonomik Faktörlerin Hisse Senedi Getirilerine Etkisi: Türkiye ve Gelişmekte Olan Piyasalar Üzerine Bir İnceleme. BDDK Bankacılık ve Finansal Piyasalar, 73-96.

Seo, J., and Choi, W., 2016. What Determinants Affect the Capital Structure of Consumer Co-Operatives? The Case of Icoop Korea. Annals of Public and Cooperative Economics, 87(1), 117-135. doi http://dx.doi.org/10.1111/apce.12088

Serrasqueiro, Z., Armada, M. R., and Nunes, P. M., 2011. Pecking Order Theory versus Trade-Off Theory: Are service SMEs’ capital structure decisions different? Service Business, 5(4), 381-409. doi http://dx.doi.org/10.1007/s11628-011-0119-5

Serrasqueiro, Z., and Caetano, A., 2015. Trade-Off Theory versus Pecking Order Theory: Capital structure decisions in a peripheral region of Portugal. Journal of Business Economics and Management, 16(2), 445-466. doi http://dx.doi.org/10.3846/16111699.2012.744344

Serrasqueiro, Z., and Nunes, P. M., 2014. Financing behaviour of Portuguese SMEs in hotel industry. International Journal of Hospitality Management, 43, 98-107. doi http://dx.doi.org/10.1016/j.ijhm.2014.09.001

Sheikh, N. A., and Wang, Z., 2011. Determinants of capital structure: An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117-133. doi http://dx.doi.org/10.1108/03074351111103668

Tang, C.-H. H., and Jang, S. S., 2007. Revisit to the determinants of capital structure: A comparison between lodging firms and software firms. Hospitality Management, 26, 175–187.

Thippayana, P., 2014. Determinants of Capital Structure in Thailand. Procedia: Social and Behavioral Sciences, 143, 1074-1077. doi http://dx.doi.org/10.1016/j.sbspro.2014.07.558

Tong, G., and Green, C. J., 2005. Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies. Applied Economics, 37(19), 2179-2189. doi http://dx.doi.org/10.1080/00036840500319873

Umer, U. M., 2014. Determinants of Capital Structure: Empirical Evidence from Large Taxpayer Share Companies in Ethiopia. International Journal of Economics and Finance, 6(1), 53-65. doi http://dx.doi.org/10.5539/ijef.v6n1p53

Vicente-Lorente, J. D., 2001. Specificity and opacity as resource-based determinants of capital structure: Evidence for Spanish manufacturing firms. Strategic Management Journal, 22(2), 157-177. doi http://dx.doi.org/10.1002/1097-0266(200101)22:2<157::AID-SMJ152>3.0.CO;2-2

Wiwattanakantang, Y., 1999. An empirical study on the determinants of the capital structure of Thai firms. Pacific-Basin Finance Journal, 7(3-4), 371-403. doi http://dx.doi.org/10.1016/S0927-538X(99)00007-4

Journal Information


All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 76 76 71
PDF Downloads 32 32 30