Do Reporting Incentives and Consequences Change under the New Lease Accounting Standard?
Christensen, Derek M., Linsmeier, Thomas J., Wangerin, Daniel D.
The Accounting Review · 2025 · Volume 100 · Issue 3
Abstract
This research evaluates whether reporting incentives and consequences change under the new lease accounting standard. Under prior guidance (SFAS 13), we predict and find firms with high financing cost sensitivities to leverage have greater incentive to finance investments with operating leases. Under the new lease accounting standard (ASU 2016-02), we predict and find this leverage incentive remains but is reduced, consistent with the FASB’s objective to limit opportunities to structure lease contracts for balance sheet purposes. Under ASU 2016-02, we also predict and find that the leverage incentive encourages firms to reduce operating lease liabilities by decreasing the duration of minimum lease payments. Lastly, we predict and find that firms use fewer operating leases under both SFAS 13 and ASU 2016-02 when managers’ income objectives exclude depreciation and/or interest expense. These findings suggest reporting incentives remain post ASU 2016-02 that encourage firms to structure leases to achieve accounting outcomes. Data Availability:This study uses licensed data from a variety of sources (seeAppendix Afor a detailed list of providers). JEL Classifications:D82; G34; M41.
Keywords
ASU 2016-02, financial contracting, leases, standard setting
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