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Off-balance sheet disclosure and leverage adjustment speed

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  • Kim, Tae-Nyun
  • Xie, Yutong

Abstract

This paper studies how accounting treatment of off-balance sheet financing affects the speed of capital structure adjustment. Utilizing a quasi-natural experiment created by Accounting Standards Update (ASU) No. 2016-02 which requires operating lease to be capitalized on the balance sheet, we find that firms adjust to target leverage faster after the announcement of the new standard. We also find that under-levered firms increase the speed of adjustment immediately after the announcement, whereas over-levered firms increase the speed of adjustment after the adoption of the new standard. Overall, our findings shed light on the impact of accounting disclosure on financial policy.

Suggested Citation

  • Kim, Tae-Nyun & Xie, Yutong, 2023. "Off-balance sheet disclosure and leverage adjustment speed," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005256
    DOI: 10.1016/j.frl.2022.103346
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital structure; Leverage adjustment speed; Target leverage; Disclosure of off-balance sheet financing; Accounting Standards Update;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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