Impact of Lease Capitalization on Financial Ratios of Listed German Companies
29 Pages Posted: 25 Jul 2006
There are 2 versions of this paper
Impact of Lease Capitalization on Financial Ratios of Listed German Companies
Impact of Lease Capitalization on Financial Ratios of Listed German Companies
Date Written: July 19, 2006
Abstract
The separation of leases into operating and finance leases for accounting purposes can result in incentives to favour operating lease contracts since they avoid on-balance sheet debt. The IASB is conducting an active research project on leasing, following the G4+1 group's research on possible improvements to lease accounting. One discussed alternative suggests treating all leases similar to today's finance leasing. Previous studies have simulated this accounting treatment following the Imhoff/Lipe/Wright (1991, 1997) constructive capitalization method. Our study is - to our knowledge - the first simulation for Germany based on a modified constructive capitalization method and, additionally, a factor model used by Standard & Poor's (CreditStats®). In line with prior literature, our results show notable changes in a variety of financial ratios. Clustering the sample into different industries, we detect significant differences between industry groups. However, the relative ratio-based ranking of the sample companies does not change much. Additionally, we observe that the CreditStats® - model yields fairly comparable results.
Keywords: leases, constructive capitalization, off-balance sheet, Tweedie approach
JEL Classification: M41, M43, M44, M47, G12, G29
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Lease Accounting Reform and Economic Consequences: The Views of Preparers and Users
By Alan Goodacre, Vivien A. Beattie, ...
-
The Potential Impact of Enforced Lease Capitalisation in the UK Retail Sector
-
A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases
By Yuri Biondi, Robert J. Bloomfield, ...