Reporting and Non-Reporting Incentives in Leasing

The Accounting Review, Forthcoming

Posted: 21 Aug 2014 Last revised: 2 Feb 2019

See all articles by Judson Caskey

Judson Caskey

University of California, Los Angeles (UCLA) - Accounting Area

N. Bugra Ozel

University of Texas at Dallas

Date Written: January 17, 2019


This study sheds light on the extent to which the use of operating leases depends on reporting incentives, such as understating liabilities, and non-reporting incentives that partly arise from the overlap between accounting, bankruptcy, and tax laws, such as increasing financing capacity and flexibility. We provide evidence that expanding financing capacity, accommodating volatile operations, and maximizing the present value of tax deductions are all important drivers of leasing decisions. Our findings suggest that capital markets and contracting based reporting incentives have little influence on operating lease use. In particular, we find weak evidence that firms increase operating leases in advance of issuing equity and no evidence that firms use operating leases to window-dress in advance of issuing debt, to avoid debt covenant violations, for compensation purposes, or to paint a better picture on an ongoing basis. These findings are consistent with reporting incentives playing a second-order role in leasing decisions.

Keywords: Bankruptcy, tax, operating flexibility, reporting incentives, airlines, lease accounting

JEL Classification: G32; G33; K34; M41

Suggested Citation

Caskey, Judson and Ozel, N. Bugra, Reporting and Non-Reporting Incentives in Leasing (January 17, 2019). The Accounting Review, Forthcoming. Available at SSRN: or

Judson Caskey

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States


N. Bugra Ozel (Contact Author)

University of Texas at Dallas ( email )

800 W Campbell Rd SM41
Richardson, TX 75201
United States

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