How Capital Leases Affect Firm Performance: An Analysis in the Shipping Industry

This study examines the effects of capital lease arrangements on the operating performance of shipping firms as proxied by Return on Assets (ROA). The maritime industry is highly capital-intensive, often requiring substantial investments in fleet acquisition and maintenance, making ROA particularly relevant as it captures the effectiveness of firms in utilizing their leased and owned assets to generate operating income. As such, many firms rely on lease arrangements to access necessary resources while preserving liquidity and financial flexibility. Using an international sample of 209 shipping firms, we estimate fixed effects regressions to assess the relationship between lease intensity and performance of the shipping firms. The findings reveal that capital lease intensity is positively associated with operating performance, indicating that leasing can be a value-enhancing financing strategy in this sector. However, the performance benefits of capital leases diminish under IFRS 16 reporting, particularly for firms with higher leverage. These findings offer important implications for investors, regulators, and managers evaluating capital structure decisions and financial reporting strategies in capital-intensive industries post-IFRS 16 implementation.