Capitalization of Operating Lease and Its Impact on Firm's Financial Ratios

This study aims to examine determinants of operating lease policies (i.e. financial constraint, asset value, growth, and firm's size), and the impact of constructive capitalisation of operating lease towards company's financial ratios. The finding shows that all determinants except financial constraints influence operating lease policies but most of operating leases is explained by factors other than the economic determinants. To restrict the abuse of operating lease that mislead users of financial statements, then operating lease should be capitalized. This study also finds that operating lease capitalization significantly impacts firm's financial ratios which are useful in decision making.