Compliance with Financial Reporting Standards and Efficiency Gains: Evidence from ASC 842

Date
2022
Authors
Kim, Doyeon
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
This study examines the impact of compliance with changes in mandated financial reporting on corporate investment decisions. I employ the recent implementation of ASC 842, which required the capitalization of all operating leases, as a plausible exogenous shock to managers' information set and conduct a differences-in-differences analysis. Using a novel dataset on machine equipment transactions, I provide four unique insights. First, relative to private firms unaffected by ASC 842, public firms exhibit a significant decline in leased equipment. In contrast there is no corresponding decline in equipment purchased through secured loans. Second, although there is no change in the aggregate amount of purchases, I show that the change equipment characteristics such as machine age and ``deployability" suggest public firms substitute their financing method from leasing to purchasing following ASC 842. Third, consistent with the notion that leases allow divisional managers more flexibility to invest without having to seek approval from the corporate office, the post-ASC 842 decrease in leasing activity is more pronounced among public firms with multiple branches and subsidiaries. Finally, I show that public firms improve investment efficiency as a result of compliance with ASC 842.
Description
Keywords
leasing, financing, investments, efficiency
Citation
Extent
Format
Geographic Location
Time Period
Related To
Rights
Rights Holder
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.