EFFECT OF FUEL PRICE VOLATILITY ON REAL ACTIVITIES EARNINGS MANAGEMENT IN AIRLINES RELATED TO FUEL PRICE HEDGING

Zhen-Jia-Liu ()
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Zhen-Jia-Liu: School of Accounting and Finance, Tan Kah Kee college, Xiamen University, China

Economics and Management, 2021, vol. 18, issue 1, 33-53

Abstract: In the search for efficient fuel cost reduction measures, many airlines have implemented hedging strategies to cope up with fuel price volatility because high and volatile fuel prices can substantially affect profit margins or losses in the airline industry. Earnings management encompasses the methods used by business executives to manipulate earnings. Therefore, we collected airline data for the period from 2007 to 2015 and examined the association between fuel price volatility and earnings management to determine whether airline executives perform fuel hedging. The results indicate that fuel price volatility is not significantly related to real earnings management (cash flow from operations, production costs, and discretionary expenditures), regardless of whether airlines conduct fuel hedging. However, fuel price volatility (i.e., the standard deviation of fuel price changes) is significantly positively related to manipulating cash flow from operations.

Keywords: fuel price; real activities; earnings management; airlines; fuel price hedging (search for similar items in EconPapers)
JEL-codes: E3 F3 F4 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:neo:journl:v:18:y:2021:i:1:p:33-53

DOI: 10.37708/em.swu.v18i1.3

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