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Does Recognition versus Disclosure Affect Risk Relevance? Evidence from Finance Leases in Japan

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  • Masaki Kusano

Abstract

This study examines the risk relevance of recognized versus disclosed finance leases in Japan. In particular, this study investigates whether and why equity investors treat recognized finance lease obligations differently from disclosed finance lease obligations when assessing firms’ equity risk. This study shows that recognized finance leases are associated with equity risk but that disclosed finance leases are not. Moreover, the relations 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 treat ing disclosed and recognized finance leases similarly when assessing firms’ equity risk. This study provides the evidence that investors’ information processing has significant effects on the risk relevan ce of lease arrangements. This study contributes to the accounting literature on recognition versus disclosure and to the discussions on the global convergence of accounting standards.

Suggested Citation

  • Masaki Kusano, 2017. "Does Recognition versus Disclosure Affect Risk Relevance? Evidence from Finance Leases in Japan," Discussion papers e-17-007, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-17-007
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    Cited by:

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    3. 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.

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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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