Impact of Lease Capitalization on Financial Ratios of Listed German Companies

Schmalenbach Business Review, Vol. 60, April 2008

24 Pages Posted: 7 Oct 2008 Last revised: 1 Nov 2008

See all articles by Rolf Uwe Fuelbier

Rolf Uwe Fuelbier

University of Bayreuth

Jorge Lirio Silva

University of Southampton - School of Social Sciences

Marc Henrik Pferdehirt

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2008

Abstract

The separation of leases into operating and finance leases for accounting purposes can result in incentives to favor operating lease contracts, since they avoid on-balance-sheet debt. The IASB and FASB are conducting a long-term joint project on leasing, following the G4 1 group's research on possible improvements to lease accounting. One alternative is to treat all leases in a manner similar to today's finance leasing. Our simulation results for Germany show notable changes in a variety of financial ratios, especially for assets and liability relations, which may trigger management with incentives to dampen these effects. Of note for standard setters, the effects of operating lease capitalization should not be overstated. Only minor effects can be observed for profitability ratios and market multiples often used for valuation purposes. Moreover, most industries remain almost unaffected and the relative ratio-based ranking of all sample companies does not change much. Additionally, we observe that the common Creditstats model yields somewhat comparable results.

Keywords: Constructive Capitalization, Creditstats, Leases, Off-balance-sheet Debt, Operating Leases, Tweedie Approach

JEL Classification: M41

Suggested Citation

Fuelbier, Rolf Uwe and Lirio Silva, Jorge and Pferdehirt, Marc Henrik, Impact of Lease Capitalization on Financial Ratios of Listed German Companies (April 1, 2008). Schmalenbach Business Review, Vol. 60, April 2008. Available at SSRN: https://ssrn.com/abstract=1280187

Rolf Uwe Fuelbier (Contact Author)

University of Bayreuth ( email )

Universitätsstraße 30
Bayreuth, 95447
Germany
+49(0)921 554820 (Phone)
+49(0)921 554822 (Fax)

HOME PAGE: http://www.irl.uni-bayreuth.de

Jorge Lirio Silva

University of Southampton - School of Social Sciences ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Marc Henrik Pferdehirt

affiliation not provided to SSRN

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