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The Relation Between Voluntary Disclosure and Financial Reporting: Evidence from Synthetic Leases


Sarah L. C. Zechman


University of Chicago - Booth School of Business

November 1, 2009

Chicago Booth Research Paper No. 08-23

Abstract:     
I investigate how the use and voluntary disclosure of synthetic leases is affected by incentives to defer cash outflows and keep debt off the balance sheet. I find that managers of cash-constrained firms with incentives to defer cash payments are more likely to finance asset purchases with synthetic leases. The mandated reporting for synthetic leases allows managers to avoid disclosing the financial consequences of these transactions. I find that managers of firms with incentives to use off-balance-sheet financing do not provide transparent disclosure about their synthetic leases. However, managers of cash-constrained firms, which are less likely to use synthetic leases for financial reporting reasons, do voluntarily disclose the existence and financial consequences of these contracts. Alternative tests around FIN 46 adoption corroborate these findings.

Number of Pages in PDF File: 50

Keywords: voluntary disclosure, financial reporting, earnings management, synthetic leases

JEL Classification: M41, M44, M45, D82, G31

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Date posted: November 19, 2008 ; Last revised: January 20, 2010

Suggested Citation

Zechman, Sarah L. C., The Relation Between Voluntary Disclosure and Financial Reporting: Evidence from Synthetic Leases (November 1, 2009). Chicago Booth Research Paper No. 08-23. Available at SSRN: http://ssrn.com/abstract=1302931 or http://dx.doi.org/10.2139/ssrn.1302931

Contact Information

Sarah L. C. Zechman (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773)702-7136 (Phone)
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