Accounting for leases and corporate investment
Ciao-Wei Chen,
Maria Correia and
Oktay Urcan
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
Abstract:
We examine the real effects of lease capitalization rules (i.e., standards that require firms to capitalize finance leases) on corporate investment. We show that the introduction of these rules leads to a decrease in investment, which is more pronounced for firms with high reliance on leases. We posit and find that lease capitalization affects investment via a learning channel and a contracting channel. Regarding the first channel, we argue that managers identify areas of overinvestment and activities that should be discontinued or downsized because of the information they collect and analyze to comply with lease capitalization rules. Accordingly, we find that the effect of lease capitalization is stronger when learning opportunities are higher. Regarding the second channel, we argue that lease capitalization affects investment via its effect on contracts. Accordingly, we document an increase in the likelihood of covenant breaches and a stronger decline in investment for financially constrained firms.
Keywords: lease; investment; disclosure; real effects (search for similar items in EconPapers)
JEL-codes: G31 M41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2023-05-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Published in Accounting Review, 1, May, 2023, 98(3), pp. 109 - 133. ISSN: 0001-4826
Downloads: (external link)
http://eprints.lse.ac.uk/117182/ Open access version. (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117182
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager (lseresearchonline@lse.ac.uk).