Title: IASB changes on leasing - a study discovering the impact of lease disclosures in the assessment of equity risk

Authors: Anastasia Kraft; Kerstin Lopatta

Addresses: Faculty of Accounting and Corporate Governance, Carl von Ossietzky University Oldenburg, Ammerländer Heerstr. 114-118, 26129 Oldenburg, Germany. ' Faculty of Accounting and Corporate Governance, Carl von Ossietzky University Oldenburg, Ammerländer Heerstr. 114-118, 26129 Oldenburg, Germany

Abstract: We investigate the relationship between equity risk and operating risk as well as equity risk and financial risk by analysing different levels of leverage, reported debt and earnings volatility of German listed companies. The results suggest that the measurement of equity risk is based on the variability in ROA. For firms that already have higher operating risk, investors include operating leases in the measurement of equity risk in addition to operating risk and reported financial risk. For firms with lower variability in ROA, the assessment of equity risk relates only to reported financial risk and operating risk; in addition, off-balance sheet debt is not significant in explaining variations in stock returns. Since reported debt and off-balance sheet debt are not treated equally, a mandated recognition of all lease contracts is expected to enhance the assessment of equity risk for firms with lower variability in earnings.

Keywords: lease accounting; operating leases; off-balance sheet financing; recognition versus disclosure; equity risk; operating risk; business risk; financial risk; efficient market hypothesis; IASB; lease disclosures; leverage levels; reported debt; earnings volatility; Germany.

DOI: 10.1504/IJAAPE.2013.050622

International Journal of Accounting, Auditing and Performance Evaluation, 2013 Vol.9 No.1, pp.27 - 57

Received: 22 Sep 2011
Accepted: 23 Jun 2012
Published online: 30 Jan 2014 *

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