Abstract
Despite air transport being the safest way to travel, accidents still happen, which incur massive costs and many consequences for industry and society. The main objective of this research is to determine the financial impact of air crashes by distinguishing between fatal and non-fatal events and their effect on the market stock price of the involved companies of airlines and manufacturers. This study also aims to contribute to the literature about the Event Study Methodology by determining which model of the two most employed in this methodology (Market model or Fama-French model) provides more accurate results. The results reveal that the companies harmed when an air crash occurs include the involved airline, regardless of the causes of the crash if it was a fatal event. However, with non-fatal events, the impact on airlines differs depending on the event’s outcome. In any case, effects are immediate, especially on the same day the event occurred. Nevertheless, manufacturing firms show no negative abnormal returns after an air crash. Finally, the Market model is more accurate in this study. These results are important for investors since they show mistrust in air transport and losses only occur in the airline involved, especially if the accident is fatal. In turn, our results provide reassurance to investors in manufacturing companies in the event of such an occurrence. In any case, this study has shown that both airlines and manufacturers must continue to promote and improve safety.
Highlights
Received: 28 December 2021The commercial airline industry is that which deals with any activity related to air transport, including those performed by airlines and airplane manufacturers
A large body of literature exists about the relation between these events and companies’ financial value, and the vast majority have centered on the US airline industry where the Event Study Methodology predominates
To select the model that values financial assets within the Event Study Methodology with more accurate results, that is, with determination coefficients closer to 1 [49], and to answer the first research question, we take the results of the regression analyses performed for all 12 studied companies, as shown in Tables 2 and 3 and classified as fatal and non-fatal events, respectively
Summary
Received: 28 December 2021The commercial airline industry is that which deals with any activity related to air transport, including those performed by airlines and airplane manufacturers. The literature shows that many authors focus on studying the impact of an aggregate set of fatal air crashes [11,12,13,14,15,16,17,18,19] They all reveal that the listings of the involved air companies, and those of rival firms, quickly react to events. Air crashes negatively affect the prices of these firms’ shares during and after aviation disasters On competition, these studies generally conclude that the most fatal accidents can negatively impact rival airlines, while less serious ones can Mathematics 2022, 10, 715 positively influence competing airlines because they will fly more passengers. These authors report marked losses for the company’s shareholders and other “low-cost” airlines, but significant earnings for the owners of major airline stocks
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