An analysis of firm and market reaction towards AAS 17/AASB 1008 / by Tanya Chongvilaiwan.

Chongvilaiwan, Tanya. (1999). An analysis of firm and market reaction towards AAS 17/AASB 1008 / by Tanya Chongvilaiwan. Honours Thesis, School of Business, The University of Queensland.

       
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Author Chongvilaiwan, Tanya.
Thesis Title An analysis of firm and market reaction towards AAS 17/AASB 1008 / by Tanya Chongvilaiwan.
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1999
Thesis type Honours Thesis
Total pages 103
Language eng
Subjects 14 Economics
15 Commerce, Management, Tourism and Services
Formatted abstract This study investigates the lease reporting practices of major Australian firms and the risk relevance of operating leases disclosure to participants in the Australian equity market.

The first part of this study concentrates on firm use of operating leases as a means of debt substitution. Since the implementation of AAS 17/AASB 1008 'Accounting for leases' , previous studies have found evidence implying that in the early years of AAS 17/AASB 1008 lessee firms were using operating leases as a substitution for finance leases and non lease debt. In this study a direct model is used to evaluate operating lease debt substitution. In addition this study evaluates operating lease debt substitution effect among highly levered firms and firms where the operating leases causes a large change in the leverage ratio of firms. This has not been done in an Australian context before. Overall the results indicate that firms were using operating leases as a means of off balance sheet financing and a substitute for finance leases and non-lease debt.

The second part of this study concentrates on market participant evaluation of operating leases as a means of debt substitution. Prior Australian studies have generally found little evidence that market participants routinely adjust risk assessments for off balance sheet leases. What evidence that has been found, has been confined to more recent years (1991 and 1992). This study extends the existing literature on the risk relevance of operating leases in three ways. First, it examines a later time period (1993-1998). Secondly, it evaluates the implications of operating leases for the systematic and total risk of the firm. Finally it focuses on evaluation of highly levered firms and firms where the change in leverage caused by the constructive capitalisation of operating leases is large and likely to have a significant impact on the financial risk of these firms. Overall the results do not indicate that the market is reacting to operating leases whether it is the total sample or the two leverage ratios.

 
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