How Will the New Lease Accounting Standard Affect the Relevance of Lease Asset Accounting?

33 Pages Posted: 19 Jan 2017 Last revised: 28 Mar 2019

See all articles by KC Lin

KC Lin

Central Michigan University - College of Business Administration

Roger C. Graham

Oregon State University

Date Written: August 1, 2018

Abstract

We extend Williamson’s (1973, 1987) transaction economics research to leased assets to help explain why some assets are acquired by capital lease and the use of other assets is acquired by operating lease. We look for evidence that capital leases are used for higher asset specificity assets and operating leases are used for lower asset specificity assets. Specifically, we find that returns on capital lease assets exceed the returns on operating lease assets. That the nature of capital lease assets differs from operating lease assets suggests that the lease standard SFAS 13 better categorizes assets under lease. The new lease standard ASU 2016-02 allows only one category for lease assets. From this we conclude that ASU 2016-02 will potentially have an adverse effect on the relevance of lease asset accounting.

Keywords: Accounting for leases; Operating lease; Capital lease; Asset specificity; Return on operating assets

JEL Classification: M41

Suggested Citation

Lin, KC and Graham, Roger C., How Will the New Lease Accounting Standard Affect the Relevance of Lease Asset Accounting? (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=2901275 or http://dx.doi.org/10.2139/ssrn.2901275

KC Lin (Contact Author)

Central Michigan University - College of Business Administration ( email )

Mt. Pleasant, MI 48858
United States

Roger C. Graham

Oregon State University ( email )

424 Austen Hall
Corvallis, OR 97331
United States
541-737-4028 (Phone)
541-737-4890 (Fax)

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