Has Risk Capital Increased Airlines Capabilities to Respond to Crisis

Sammanfattning: Purpose: This paper aims to empirically investigate if pre-pandemic risk-capital was able to mitigate the negative impact of the COVID-19 pandemic on employees and investments in the airline industry Method: The base econometric methodology used is multiple regression analysis with the four risk capitals interacting with a dummy variable for the year 2020 when the COVID-19 pandemic hit. Theory: The broad theoretical framework is based on financial constraints and risk capital in the form of economic capital and risk capacity. Empirical foundation: 399 firm-year observations from the airline industry between 2016 and 2020 make up the empirical foundation of this paper. Conclusions: Liquidity in the form of cash reserves was proven to be the most efficient risk capital at absorbing revenue shocks and mitigating reductions in both employees and investments in the airline industry. Moreover, economic capital in the form of a higher equity ratio had a positive relationship with investments. No strong support was found for cash margin or operating flexibility to have any buffering effects.