Threat of Entry and Debt Maturity: Evidence from Airlines

Gianpaolo Parise
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Gianpaolo Parise: University of Lugano and Swiss Finance Institute

No 14-39, Swiss Finance Institute Research Paper Series from 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.

Keywords: airlines; competition; debt maturity; rollover risk; threat of entry (search for similar items in EconPapers)
JEL-codes: D21 D43 G31 G32 L93 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-07, Revised 2015-10
New Economics Papers: this item is included in nep-com and nep-tre
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1439

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