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Impact of Lease Capitalization on Financial Ratios of Listed German Companies

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  • Rolf Uwe Fülbier
  • Jorge Lirio Silva
  • Marc Henrik Pferdehirt

Abstract

The separation of leases into operating and finance leases for accounting purposes can result in incentives to favor operating lease contracts, since they avoid on-balance-sheet debt. the IASB and FAsB are conducting a long-term joint project on leasing, following the G4+1 group’s research on possible improvements to lease accounting. One alternative is to treat all leases in a manner similar to today’s finance leasing. Our simulation results for Germany show notable changes in a variety of financial ratios, especially for assets and liability relations, which may trigger management with incentives to dampen these effects. Of note for standard setters, the effects of operating lease capitalization should not be overstated. Only minor effects can be observed for profitability ratios and market multiples often used for valuation purposes. Moreover, most industries remain almost unaffected and the relative ratio-based ranking of all sample companies does not change much. additionally, we observe that the common Creditstats® model yields somewhat comparable results.

Suggested Citation

  • Rolf Uwe Fülbier & Jorge Lirio Silva & Marc Henrik Pferdehirt, 2008. "Impact of Lease Capitalization on Financial Ratios of Listed German Companies," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 60(2), pages 122-144, April.
  • Handle: RePEc:sbr:abstra:v:60:y:2008:i:2:p:122-144
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    Citations

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    Cited by:

    1. Tommaso Fabi & Enrico Laghi & Marco Mattei & Alessandro Sura, 2014. "Comparing the effects of IASB Proposal on leasing: an impact assessment of EU listed Companies," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2014(2-3-4), pages 17-57.
    2. repec:eee:spacre:v:17:y:2014:i:2:p:212-223 is not listed on IDEAS
    3. Fitó, M. Àngels & Moya, Soledad & Orgaz, Neus, 2013. "The debate on rented assets capitalization: The economic impact on family firms," Journal of Family Business Strategy, Elsevier, vol. 4(4), pages 260-269.
    4. Masaki Kusano, 2017. "Effect of Capitalizing Operating Leases on Credit Ratings:Evidence from Japan," Discussion papers e-16-016, Graduate School of Economics , Kyoto University.
    5. repec:eee:spacre:v:18:y:2015:i:1:p:99-113 is not listed on IDEAS
    6. Diamant, Olga, 2010. "Leasing und bilanzpolitische Motive," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 8(2), pages 7-32.

    More about this item

    Keywords

    Constructive Capitalization; Creditstats®; Leases; Off-Balance-Sheet Debt; Operating Leases; Tweedie Approach;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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