Leases on Balance Sheets

Peter Chinloy, Matthew Imes and Wendy Liu

Chapter 30 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 979-1006 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Leasing transfers effective ownership of physical assets to specialists. Firms not specializing in asset ownership focus on core competence and scale. In asset ownership including real estate, specialists have low or zero corporate tax rates and use depreciation to shield dividends. With operating leases, non-specialist firms operate the assets with no entry on balance sheets. On income statements, non-specialists deduct rent as an expense. On specialist income statements, the rent is exempt from double taxation of distributed dividends. Accounting reform proposes to undo and upend these arbitrage provisions. All leases have capitalized present values and are reflected as right-to-use assets and liabilities on balance sheets, expensed straight line. Reported liabilities rise, potentially undermining debt covenants. Sale and leaseback provisions are at risk of being reversed, notably if proceeds have been already distributed.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811269943_0030 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811269943_0030 (text/html)
Ebook Access is available upon purchase.

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:wsi:wschap:9789811269943_0030

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().