Proposed new lease standard -Do investors adjust for capitalized operating leases in their assessment on market value of equity?

摘要

BACKGROUND AND PROBLEM DISCUSSION Leases are a common way for companiesto acquire assets. However, the current lease regulation is criticized and a proposed new leasestandard (exposure draft) has been released. The presented changes in the new exposure draftinclude capitalizing all leases, which will affect companies’ financial ratios. These regulationchanges may affect the market value for affected companies.PURPOSE The purpose of this paper is to describe and explore the effects and possibleconsequences capitalizing operating leases has on market value of equity. We want toinvestigate if investors already adjust for capitalized operating leases in their assessment ofmarket value of equity.RESEARCH DESIGN AND METHOD Our purpose and hypothesis is investigated bycapitalizing operating leases. All data is collected from DataStream and processed using aconstructive capitalization model. The capitalized data is then tested against our hypothesis usinga regression model.RESULT AND CONCLUSION Our results indicate that investors do not adjust current marketvalue of equity for capitalized operating leases.SUGGESTION AND FURTHER RESEARCH An event study for the same companies afterthe implementation of the new standard would be interesting to see if the new standard in facthas an effect on market value of equity.