Economic consequences of changes in the lease accounting standard: Evidence from Japan

The purpose of this study is to investigate the economic consequences of changes in the lease accounting standard in Japan. In particular, this study examines whether capitalization of finance leases has significant effects on firm behavior regarding the choice of accounting treatment and the arrangement of leases. Our findings are twofold. First, firms with debt contracting incentives are more likely to choose the exceptional treatment, which recognizes only finance leases contracted after the adoption of Statement No. 13, Accounting Standard for Lease Transactions. Second, firms choosing the exceptional treatment are more likely to transfer leases from finance leases to operating leases in response to the adoption of Statement No. 13. This study contributes to the literature on recognition versus disclosure as well as to discussions on the global convergence of accounting standards.