The Effect of Leverage on Airlines Profitability: An Empirical Study on Selected African Airlines
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Date
2019-06
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Addis Ababa University
Abstract
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.
Description
A thesis submitted to department of Accounting and Finance in
Partial fulfillment of the requirements for the Degree of
Master of Science in Accounting and Finance
Keywords
African Airlines, Degree of Financial leverage, Profitability