The cost of capital for airlines: The effects of internal governance practices and the application of new leasing standards

Abstract

The tourism literature has made a real effort to study the impact of internal governance practices and external factors on corporate performance and business risk. Nevertheless, knowledge in the airline industry is less advanced than in other industries. This study aims to fill the gap by extending our learning in a new direction. To be specific, we address the following research questions: 1) Do internal governance practices affect the cost of capital (CoC) for airlines? 2) Do the new leasing standards (IFRS 16 and ASC 842) affect the CoC? 3) Has external audit pricing mediated previous relationships? To this end we collect information on 50 airlines for the period 2017–2022. The main results show that both the adoption of new leasing standards (IFRS 16 & ASC 842) and the governance dimension are important instruments for managing risk. There is also a sizeable mediation effect on audit pricing involved in the strategy of having good governance mechanisms for reducing the CoC for airlines.