THE IMPACT OF CAPITAL STRUCTURE AND GOOD CORPORATE GOVERNANCE TOWARDS PROFITABILITY RATIOS AND FINANCIAL FAILURE POTENTIAL IN ASIA PACIFIC’S AIRLINES INDUSTRY

Abstract

The purpose of this study is to examine the capital structure and good corporate governance impact towards profitability ratios and analysing financial failure potential of airlines industry. Variable used as representatives of the capital structure are collateralize value of assets, firm size, sales growth, fuel costs, and financial strength. Then, variable used for the good corporate governance are board size and safety committee. ROA and ROE are used as proxies of profitability ratios. This research uses a quantitative research methods and fixedeffects regression to test the significant impact. Altman Z Score model used to support the depict of financial failure potential. Data were collected from 5 Asia Pacific major airlines’ annual report in the period of 2013 until 2015. The result of this research showed firm size, growth, and fuel costs significantly impact the ROA. Meanwhile, growth and fuel costs significantly impact the ROE. The Altman Z Score result shows that 4 out of 5 airlines were experienced financial distress. In short, this study identify serious financial challenges of all 5 Asia Pacific major airlines during 2013 - 2015.