This study examines whether credit market participants—bond investors and credit rating agencies—treat recognized and disclosed finance leases differently when assessing firms’ credit risk in Japan. I use firms’ credit risk, measured by bond spreads and credit ratings, to investigate the relations between recognized versus disclosed finance lease obligations and firms’ credit risk following the adoption of Statement No. 13, Accounting Standard for Lease Transactions. For a sample of firms issuing new bonds, I find that, unlike recognized finance leases, disclosed finance leases are not associated with bond spreads. Moreover, the associations between recognized versus disclosed finance leases and bond spreads are substantially different. Conversely, recognized and disclosed finance leases are associated with credit ratings and are processed similarly when credit ratings are determined. Taken together, my results suggest that the sophistication of capital market participants influences their credit risk assessments of recognized versus disclosed finance leases.
The purpose of this study is to examine the effects of constructively capitalizing operating leases on credit ratings in Japan. In particular, this study investigates whether and how a credit rating agency considers operating lease information when determining credit ratings. First, this study shows that constructively capitalized operating leases are associated with credit ratings. Second, this study finds that the associations between credit ratings and operating leases versus finance leases are not substantially different. However, when operating lease disclosures are less reliable, this study finds that operating leases are not associated with credit ratings and that the risk relevance of operating leases is substantially different from that of finance leases. This study reports that the reliability of accounting information has significant effects on the risk relevance of operating leases. These results indicate that a credit rating agency considers operating lease information in determining credit ratings to the extent that this information is reliable. This study contributes to the literature on the usefulness of operating lease disclosures and to the discussions on the global convergence of accounting standards. JEL Classification: M41, M48
Purpose The purpose of this study is to examine the International Accounting Standards Board (IASB)’s response to criticism and political pressure at the time of the global financial crisis through the lens of legitimacy theory. Design/methodology/approach This study constructs a thick description about a causal mechanism between social crisis and organizational change using a process-tracing approach that combines a historical narrative and a theoretical consideration. Findings The IASB faced criticism of its accounting standards for financial instruments and its governance structure during the financial crisis. This criticism represented the crises of pragmatic and cultural legitimacy. Facing these legitimacy crises, the IASB adopted such legitimation strategies as normalization and restructuring to repair its legitimacy. Additionally, in these repairing processes, the IASB, as a bonus, became institutionally embedded itself in the global political arena and succeeded to strengthen its legitimacy. Originality/value The study suggests that the financial crisis had a significant impact on the standardization of transnational accounting. Indeed, the crisis was an important turning point of the IASB’s work on revising its accounting standards to reduce complexity and altering its Constitution. Moreover, the authors bridge the gaps in the literature on accounting and legitimacy by examining how the IASB used particular legitimacy repair strategies when facing its legitimacy crises
The purpose of this study is to investigate the effects of a change in the accounting model on accounting information for decision making. Especially, this study shows that net income (earnings) does not play an important role in providing useful information for decision making if the accounting model changes from flow-based accounting to stockbased accounting. If the IASB and the FASB adopt stock-based accounting and measure assets and liabilities at fair value, earnings persistence and predictive ability will decrease, and the usefulness of income information will be impaired due to the increasing transitory earnings and the effects of earnings volatility. Stock-based accounting that emphasizes the balance sheet will impair the valuation role of financial reporting because the combined usefulness of accounting information of the book value of net assets and earnings does not improve; the usefulness of stock information (the balance sheet) for decision making does not necessarily improve, and the usefulness of flow information (net income) decreases. This finding indicates that the balance sheet approach does not necessarily improve the usefulness of accounting information.
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