Abstract This study examines how working capital impacts profitability, shareholder value, and the relationship between COVID-19 and airline size for the top ten U.S. commercial airlines from 2010 to 2021. Working capital is the short-financing indicator crucial for airline management facing economic uncertainty. This research applied dynamic panel data regression using the Hausmann-Taylor panel regression and the general method of moments to avoid heteroskedasticity, endogeneity, and unbiasedness. The cash conversion cycle, the current ratio, the quick ratio, and working capital are explanatory variables. Revenue growth rates, earnings-per-share, and return-on-assets are the explained variables for profitability and shareholder values. The authors find that the previous year's activities, days in inventory (DII), days-sales-outstanding (DSO), and COVID-19 as dummy variables impact profitability and shareholder value. The DII, DSO, and days-payable-outstanding of the large airline companies are more prominent than those of small airlines. The value of this study is that it is the first to explore working capital and its impact on profitability and shareholder with its determinants in the airline service industry, including the pandemic period.
Highlights Days-sales-outstanding has the most significant impact on profitability and shareholder value than the other working capital-related indexes. Airlines' size matter for profitability and shareholder value. A low DSO suggests that an airline effectively manages its cash flows and financial sustainability. Working capital captures the attention of top management as corporate goals shift from maximizing profits to securing liquidity.
Exploring the impact of working capital in the U.S. aviation industry for profitability and shareholder value
Transport Policy ; 144 ; 90-101
2023-10-16
12 pages
Aufsatz (Zeitschrift)
Elektronische Ressource
Englisch
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