Risk information and financial lease disclosures: some empirical evidence

Abstract

<p>This paper reports the results of an empirical investigation into whether the disclosure of the present value of noncapitalized financial leases under ASR 147 conveyed information regarding the relative risks of lessees common stocks. In particular, the results indicate that in the time period surrounding the initial ASR 147 disclosures, the systematic risk levels of the common stocks of lessees appear to have been adjusted upwards vis-a-vis those for control samples of non leasing firms. This market reaction appears to be especially observable for lessees with a higher than average amount of noncapitalized financial leases in their capital structures. Furthermore, the configuration of risk adjustments from a temporal viewpoint indicates that the ASR147 disclosures contained sufficiently "new" information so as to cause significant revisions in the relative risk assessments of market participants. This appears to be the case despite possible market attempts to impound the risk-information effects in advance of the disclosures.</p>