Operating Lease Accounting and Firms’ Financing Decisions

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Operating Lease Accounting and Firms’ Financing Decisions

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2023-06

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The capitalization of operating leases required by the FASB’s new rule (ASC 842) resulted in an increase in firms’ leverage. I find that firms respond to ASC 842 by decreasing debt financing and increasing equity financing, to offset the increase in leverage caused by the rule change. This endogenous shift is more pronounced among firms with lower cost of equity capital, less investor sophistication, and lower analyst coverage. The credit market appears to understand this shift and responds to it with a lower spread. Combined, the results show that the change in operating lease accounting impacts corporate financing decisions and the resulting capital structure.

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University of Minnesota Ph.D. dissertation. June 2023. Major: Business Administration. Advisor: Vivian Fang. 1 computer file (PDF); vi, 46 pages.

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Shao, Xinyuan. (2023). Operating Lease Accounting and Firms’ Financing Decisions. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/258664.

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