Accounting and Auditing

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Browsing Accounting and Auditing by Author "Abaynew, Demisew"

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    The Effect of Leverage on Airlines Profitability: An Empirical Study on Selected African Airlines
    (Addis Ababa University, 2019-06) Abaynew, Demisew; Abebe, Yitayew (PhD)
    The purpose of the study was to investigate the effect of leverage on selected African airlines profitability. Accordingly, secondary data obtained from audited annual reports of purposively selected seven airlines for the period 2008 to 2017 were analyzed through fixed effect panel regression model by using EVIEWS 10 software package. The study adopted a quantitative and explanatory research approach and design respectively. The effect of both the degree of operating and financial leverage on airlines profitability (ROA) was analyzed by inducing control variables (operating efficiency, size of airlines, and exchange rate) to isolate the effect of leverage on airlines’ profitability and to capture the effect of variables other than the study’s main objective variables (degree of operating and financial leverage). The result of the fixed effect regression model revealed that airlines degree of operating leverage has a positive and statistically significant effect on profitability (ROA). On the other hand, airlines degree of financial leverage, operating efficiency, size of airlines, and exchange rate have a negative and significant effect on selected airlines profitability (ROA). Accordingly based on findings airlines are advised to revise their operating cost and capital structure by increasing the degree of operating leverage (use fixed operating cost) as it maximizes their profitability and optimizing debt financing to easily manageable levels so that it will help them to maximize their profitability.