Abstract
Previous research has used reduced-form models to determine the impact of financial condition and safety investment on airline accident risk and has found limited statistical evidence. We model safety investment as a mediating variable between the financial health of an airline and its accident propensity and simultaneously account for the reverse effects of accident propensity on safety investment. Compared with prior research, our structural model yields stronger results. Specifically, we find that safety investment reduces accident propensity, while the reverse effect is also significant. However, financial condition does not appear to affect safety investment or accident propensity.
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