Financial Impact on Companies by FASB Change in Accounting for Leases

DOI: 10.5176/2251-1997_AF17.9

Authors: Lloyd Soobrian

Abstract:

On February 25, 2016, the Financial Accounting Board (FASB) made its final announcement regarding changes to the accounting reporting procedures for lease transactions where operating leases expensed in the income statement must be capitalized on the balance sheet. The theory of capitalizing operating leases is supposed to affect companies, with large amounts of leases, stock prices negatively. The purpose of this research paper is to examine the financial impact of the FASB new lease standard on stock prices and financial ratios. Event study and financial ratios analyses used in this study indicate that stock prices did not react negatively or positively to the FASB announcement.

Keywords: FASB lease change; ratio analysis; event study analysis