Israa Qasem Mohammad Al Barakat and Azwadi Ali♣

Faculty of Business, Economics and Social Development,
Universiti Malaysia Terengganu, Malaysia

ABSTRACT

This study examines factors influencing the speed of adjustment (SOA) toward target leverage in the airline industry of developing countries, with a focus on the moderating role of accrual quality. It investigates how firm-specific and macroeconomic variables affect capital structure adjustments and whether accrual quality alters these relationships. Using a panel dataset of 149 airlines from 59 developing countries (2012–2020), the System Generalized Method of Moments was applied to address endogeneity and dynamic relationships. Financial strength, inflation, collateralized asset value, energy intensity, profitability, and non-debt tax shields significantly affect the SOA. In addition, high accrual quality reduces the negative influence of financial strength and non-debt tax shields, while enhancing the positive impacts of profitability and collateralized assets on the SOA. This indicates that stronger financial reporting quality facilitates more efficient capital structure adjustments. The study focuses on airlines in developing countries between 2012 and 2020, limiting generalizability to other industries or periods. Nonetheless, the findings offer insights to policymakers, investors, and airline managers by highlighting the importance of financial reporting quality in capital structure dynamics.

Keywords: Airlines, Leverage, Speed of Adjustment, Accrual Quality