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Does recognition versus disclosure affect risk relevance? Evidence from finance leases in Japan

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  • Kusano, Masaki

Abstract

This study examines the risk relevance of recognized versus disclosed finance leases in Japan. More specifically, this study investigates whether and why equity investors treat recognized and disclosed finance lease obligations differently when assessing firms’ equity risk. This study shows that recognized finance leases are associated with equity risk while disclosed finance leases are not. Moreover, the relationships between recognized versus disclosed finance leases and equity risk are substantially different. However, for firms with higher levels of institutional ownership, the risk relevance of disclosed finance leases is similar to the risk relevance of recognized finance leases. These results suggest that institutional investors are more sophisticated at processing disclosed finance leases and treating disclosed and recognized finance leases similarly when assessing firms’ equity risk. Thus, this study provides evidence that investors’ information processing has significant effects on the risk relevance of lease arrangements.

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  • Kusano, Masaki, 2020. "Does recognition versus disclosure affect risk relevance? Evidence from finance leases in Japan," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:jiaata:v:38:y:2020:i:c:s1061951820300045
    DOI: 10.1016/j.intaccaudtax.2020.100303
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    Cited by:

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    2. Alberto Calahorro-López & Melinda Ratkai & Julio Vena-Oya, 2022. "The Financial/Accounting Impact of FFP on Participating in European Competitions: An Analysis of the Spanish League," IJFS, MDPI, vol. 10(3), pages 1-19, September.
    3. Kusano, Masaki, 2023. "Does recognition versus disclosure of pension liabilities affect credit ratings? Evidence from Japan," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Recognition versus disclosure; Finance leases; Equity risk; Institutional ownership;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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