A new lease on firm behavior

Matteo Binfarè, Robert A. Connolly, Fotis Grigoris and Crocker H. Liu

Journal of Corporate Finance, 2025, vol. 94, issue C

Abstract: When firms have discretion in valuing their balance sheet debt, how do they make this valuation decision given its impact on firm value? Firms make extensive use of operating leases, but unlike other types of debt, their balance sheet value is set by the firm. Using novel information on operating leases, we examine firm behavior in valuing these leases. We find that 20% of firms report higher-than-expected rates, reflecting their cost of unsecured rather than collateralized borrowing. These firms have poor information quality, operate in competitive markets, and understate lease and debt ratios by 15%.

Keywords: ASC 842; Capital structure; Discount rate; Lease; Secured debt (search for similar items in EconPapers)
JEL-codes: G00 G30 G31 G32 M40 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:94:y:2025:i:c:s0929119925000616

DOI: 10.1016/j.jcorpfin.2025.102793

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