Off-balance sheet disclosure and leverage adjustment speed

Tae-Nyun Kim and Yutong Xie

Finance Research Letters, 2023, vol. 51, issue C

Abstract: This paper studies how accounting treatment of off-balance sheet financing affects the speed of capital structure adjustment. Utilizing a quasi-natural experiment created by Accounting Standards Update (ASU) No. 2016-02 which requires operating lease to be capitalized on the balance sheet, we find that firms adjust to target leverage faster after the announcement of the new standard. We also find that under-levered firms increase the speed of adjustment immediately after the announcement, whereas over-levered firms increase the speed of adjustment after the adoption of the new standard. Overall, our findings shed light on the impact of accounting disclosure on financial policy.

Keywords: Capital structure; Leverage adjustment speed; Target leverage; Disclosure of off-balance sheet financing; Accounting Standards Update (search for similar items in EconPapers)
JEL-codes: G30 G32 G33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005256

DOI: 10.1016/j.frl.2022.103346

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