“Fly down”: the impact of new accounting standards on the airline industry risk assessment

Niccolò Comerio (), Fausto Pacicco () and Massimiliano Serati ()
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Niccolò Comerio: LIUC - Università Carlo Cattaneo
Fausto Pacicco: LIUC - Università Carlo Cattaneo
Massimiliano Serati: LIUC - Università Carlo Cattaneo

Empirical Economics, 2024, vol. 67, issue 5, No 7, 2109-2133

Abstract: Abstract Lease accounting has often been criticized for being too reliant on bright lines and subjective judgments, as lessees were not required to disclose assets and liabilities arising from operating leases directly on the balance sheet, thereby improving the appearance of the financial condition to investors. To remedy this, in January and February 2016 the IASB and the FASB issued the new accounting standard IFRS 16 and ASC 842, starting a new era of lease accounting and ending the guesswork previously required when calculating companies’ lease obligations. This paper investigates the impact on investors’ risk perception level of EU and US airline companies, following the enactment of these accounting standards. Results confirm the importance of disclosing all the relevant information about leases directly within the financial statements and not in footnotes, as this increases transparency and comparability between financial statements, protecting all investors, ranging from the rational ones to the more credulous.

Keywords: Lease accounting; IFRS 16; ASC 842; Airline industry; Risk perception; State-space model (search for similar items in EconPapers)
JEL-codes: G14 G15 L93 M41 M48 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-024-02608-w

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