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Threat of Entry and Debt Maturity: Evidence from Airlines

Author

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  • Gianpaolo PARISE

    (University of Lugano and Swiss Finance Institute)

Abstract

This paper provides evidence for the effect of threat of entry on corporate debt structure in the airline industry. In particular, the evolution of the main low cost air carriers' route network is used to identify routes where the probability of future entry increases dramatically. Empirical results show that when the most strategic routes are threatened, incumbents significantly increase debt maturity before low cost airlines start flying. Overall, the main findings suggest that airlines respond to entry threats by lengthening the maturity of their debt in order to reduce liquidity risk.

Suggested Citation

  • Gianpaolo PARISE, 2014. "Threat of Entry and Debt Maturity: Evidence from Airlines," Swiss Finance Institute Research Paper Series 14-39, Swiss Finance Institute, revised Oct 2015.
    • Handle: RePEc:chf:rpseri:rp1439
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    File URL: http://ssrn.com/abstract=2471581
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    More about this item

    Keywords

    airlines; competition; debt maturity; rollover risk; threat of entry;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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