A novel approach to determinants of corporate cash holdings: Evidence from the airline industry

Net cash flow is extremely important in capital-intensive industries. In industries operating on a global scale, such as the airline industry, situations such as a terrorist attack, financial crises, pandemic, or war can make cash flow uncertain and unreliable. The airline industry has faced significant cash flow problems during the COVID-19 pandemic. The interruption of net cash flow, especially during crises (e.g., Covid-19), causes some industries to experience financial stress. In this study, we aim to reveal the financial determinants of corporate cash holdings in the airline industry, based on the airline business model. In this context, we empirically analyzed airlines employing low-cost and traditional business models. Unlike previous research, we analyze the financial determinants of airlines' net cash flows from financing activities, investing activities and operating activities. This paper makes a substantial contribution to the literature by leveraging a comprehensive analysis of cash flow dynamics, shedding new light on financial performance. We devised a comprehensive approach by formulating five distinct models to scrutinize the determinants that influence corporate cash holdings. The proposed model demonstrates versatility within various segments of the aviation industry, making it applicable to both traditional and low-cost airline business models. The findings of the study indicate that there are differences between models regarding the financial determinants of corporate cash holdings. The analysis reveals interesting insights contrary to the conventional wisdom on corporate cash holdings in the airline industry. For instance, one of the most interesting findings of the study is that the financial structure of airlines is significantly determined by the source of net cash flow (from financing, investment and operational activities). Furthermore, the findings of the study provide a multidimensional understanding of the factors affecting airlines' corporate cash holdings.