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20.05.2024

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

verfasst von: Niccolò Comerio, Fausto Pacicco, Massimiliano Serati

Erschienen in: Empirical Economics

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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.

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Fußnoten
1
Wizz-Air was not included in the sample due to the insufficient number of observations in the time-frame related to our analysis.
 
2
Mesa Air Group was excluded as was not publicly traded during these events.
 
3
For exposition’s sake, if not explicitly stated otherwise we will use the term beta throughout the paper to refer to the market factor’s beta.
 
4
See “Appendix” A for more details about the Kalman filter implementation.
 
5
For each of the 4 n-th \(\beta \), the corresponding \(\beta ^{cycle}\) is the one in the n+4 position: for the mkt factor, the second and the sixth ones are used.
 
6
This is also due to the presence of a non-normal error term.
 
7
To check the robustness of our results, we tested 52 weeks before and 13 weeks after as well as 52 weeks and 26 weeks after; results, available upon requests, show exactly the same sign and significance for the portfolios and almost an 80% of sign and significance concordance for the single airlines.
 
8
For brevity’s sake, details about each company included are here omitted and are available upon request to the authors.
 
9
Front loading is caused by the combination of a decreasing interest charge over time as the lease liability is repaid and the straight line amortization of the RoU asset.
 
10
It is important to emphasize that \(\beta \)s are “de-cycled.” While these lose their informative values (i.e., a value below zero does not indicate counter-cyclical securities), being “purged” from the business cycles allows us to pinpoint the impact of specific events, thus becoming extremely useful to the scope of this analysis.
 
11
Graphs for all the airlines are available upon request to the authors.
 
12
Following a reviewer suggestion, we tried to identify the drivers moving market betas, disentangling them as in Pacicco et al. (2021). Thus, we estimated a regression model with the time-varying “de-cycled” beta as the dependent variable and several balance sheet items as independent ones, obtaining results in line with the expectations (e.g., an increase in Current liabilities or Non-current Assets increases the beta value). Explaining in detail these results would, however, require an in-depth discussion on a company basis of balance sheet data, shifting the focus of this work; moreover, as annual balance sheet items are not exactly in line with tested dates, a lengthy discussion would also be required to amend eventual mis-alignment, further complicating the exposition. Therefore, we think that such analysis should be investigated in a dedicated future study.
 
13
Please note that, in order to provide a more updated reference, we use the syntax found in the 2012 edition of the book.
 
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Metadaten
Titel
“Fly down”: the impact of new accounting standards on the airline industry risk assessment
verfasst von
Niccolò Comerio
Fausto Pacicco
Massimiliano Serati
Publikationsdatum
20.05.2024
Verlag
Springer Berlin Heidelberg
Erschienen in
Empirical Economics
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI
https://doi.org/10.1007/s00181-024-02608-w

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