Effects of IFRS 16 on Key Financial Ratios: A New Methodological Approach

Morales-Díaz, José, Zamora-Ramírez, Constancio (2018): Effects of IFRS 16 on Key Financial Ratios: A New Methodological Approach. Accounting in Europe. Vol. 15. Núm. 1. Pag. 1-33. 10.1080/17449480.2018.1433307

46 Pages Posted: 30 Mar 2017 Last revised: 19 Mar 2018

Date Written: March 28, 2017

Abstract

In January 2016, the IASB issued a new standard for lease accounting (IFRS 16). IFRS 16 will lead to the capitalisation of the majority of current operating leases by lessees. We analyse the impact of the new accounting model on entity’s key financial, contributing to research by making significant changes in the Imhoff et al. (1991, 1997) methodology used by previous authors. We change how the lease term is estimated (more aligned with the final approved standard), and how the discount rate is obtained. Furthermore, we use a more comprehensive sample (646 quoted European companies). In line with previous research we find important systematic impacts on key balance sheet financial ratios (mainly leverage ratios), on a magnitude that depends on the operating lease intensity of the sector in which the entity operates. Our estimated impact is generally higher than that obtained in previous studies. The most affected sectors are retail, hotels and transportation. We do not find a consistent result with regard to the effect on profitability ratios.

Keywords: IFRS 16, Operating Leases, Liabilities, Financial Ratios, Impact Assessment

JEL Classification: M41

Suggested Citation

Morales-Díaz, José and Zamora-Ramírez, Constancio, Effects of IFRS 16 on Key Financial Ratios: A New Methodological Approach (March 28, 2017). Morales-Díaz, José, Zamora-Ramírez, Constancio (2018): Effects of IFRS 16 on Key Financial Ratios: A New Methodological Approach. Accounting in Europe. Vol. 15. Núm. 1. Pag. 1-33. 10.1080/17449480.2018.1433307. Available at SSRN: https://ssrn.com/abstract=2942326

José Morales-Díaz

Universidad Complutense ( email )

Campus de Somosaguas
Pozuelo de Alarcón, Madrid 28223
Spain

Constancio Zamora-Ramírez (Contact Author)

University of Seville ( email )

Facultad de Economicas
Ramon y Cajal 1
Sevilla, Sevilla 41018
Spain

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