impact of the capitalization of operating leases

Abstract

We provide a brief explanation of the new Financial Accounting Standards Board (FASB) standard requiring firms to move their off-balance sheet operating leases onto the balance sheet beginning in 2019, and then discuss how the new rule might affect the stock and bond values in the largest 1,000 listed firms. In short, despite dramatic increases in on-balance sheet liabilities in several industries, wecaution investors not to anticipate changes in their stock or bond valuations resulting from this change. Because asset values change in response to new information, and the information we present in this article regarding changes in total assets and debt ratios is currently available in the notes to the financial statements and from data providers such as Bloomberg, it is already being used byprofessionals to forecast asset values.