The Market Reaction to the Finance Lease Capitalization from the View Point of Risk Assessment

Abstract

The purpose of this paper is to investigate whether the market reaction associated with the movement of the finance lease disclosures from footnotes to the body of financial statements. I have chosen to examine a Japanese sample because I could obtain enough number of firms which were influenced by the change of accounting standard.

The result showed that the market has not reacted on the average about having shifted to recognition from disclosure and the risk of specific industries was revised upward by standard revision. This means that investors were not able to foresee change of lessees’ decision rather than the footnote disclosure was inferior to recognition on balance sheets.

Although the results of this paper are concerned with the capitalization of finance leases, they have some implication for “Leases: Preliminary Views” released by FASB and IASB.

Keywords: Lease Accounting Risk Assesment

JEL Classification: M41