Value relevance of operating leases - Empirical evidence from listed companies on air transportation industry
School of Business | Master's thesis
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AbstractAbstract RESEARH OBJECTIVES The objective of this study is to investigate the value relevance of constructively capitalized operating leases. Currently, leases are classified either operating leases or capital leases. Unlike capital leases, operating leases are reported as rental expense and omitted from balance sheet. Information of operating lease commitments is disclosed in footnotes. Operating leases represent one of the largest source of off-balance sheet financing. There has been a concern among standard setters for a long time, whether the current accounting practice offers reliable representation of leasing transactions that companies are engaged into for financial statement users. This study aims to examine, if the operating lease commitments are reflected in the share prices, i.e. if the market perceives the operating lease information correctly, even though reported off-balance sheet. DATA AND METHODOLOGY The data used in this study is obtained from Compustat. The data is from years 1993-2013 and comprises observations of listed companies on air transportation industry, totaling to 850 observations. The study is conducted using OLS regression analysis, by estimating three different models. FINDINGS The study fails to find incremental information content for constructively capitalized operating leases, beyond that contained in reported assets, liabilities and sales. Thus, study fails to find evidence for value relevance of operating leases.
operating leases, off-balance sheet financing, standard setting, value-relevance, lease accounting, IFRS