Financial Reporting Quality, Private Information, Monitoring and the Lease-Versus-Buy Decision

By Anne L. Beatty, Scott Liao, Joseph P. Weber. 2010

194 citations recorded by the source corpus.

ABSTRACT: A flourishing stream of research suggests that liquidity-constrained firms with low accounting quality have limited access to capital for investments. We extend this research by investigating whether these firms are more likely to lease their assets. Lessors’ superior control rights allow them to provide capital to constrained firms with low-quality accounting reports. Consistent with this conjecture, we find that low accounting quality firms have a higher propensity to lease than purchase assets. To verify that leasing does not merely reflect these firms’ desire for off-balance-sheet accounting, we investigate whether banks’ access to private information and monitoring affect the relation between accounting quality and leasing. We find the association between accounting quality and leasing decreases when banks have higher monitoring incentives and when loans contain capital expenditure provisions. These results suggest that other mechanisms can substitute for the role of accounting quality in r...

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/718254d0ac1e96b5c617acbd9ce9f0a0ea2aaafb

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Citations in the corpus

The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting (2010, background): “While Beatty et al. (2008) and Frankel et al. (2008) have taken some preliminary steps investigating why firms exclude intangible assets from net worth calculations (i.e., include goodwill in covenant calculations), there are a number of other frequent modifications that are made to covenant…”
Governance and Taxes: Evidence from Regression Discontinuity (2016, unknown): “In related recent work (Bird and Karolyi 2016), we find that index reconstitutions are associated with improvements in the quantity and quality of corporate disclosure. Hence, managers affected by this exogenous shock to governance both increase their tax avoidance and apparently improve their discl”
The Spillover Effect of Fraudulent Financial Reporting on Peer Firms’ Investments (2013, unknown): “Several studies including Biddle and Hilary (2006), Biddle et al. (2009) and Beatty et al. (2010) examine how differences in accounting quality in the absence of misstatements affect firms’ investments.”
Do Institutional Investors Demand Public Disclosure (2016, unknown): “These variables are Big4i,t, an indicator that equals one if firm i has a Big Four auditor in year t and zero otherwise5, AudSwitchi,t, an indicator that equals one if firm i switches from any auditor to another in year t and zero otherwise, AdvOpinioni,t, an indicator that equals one if firm i’s au”
The effects of financial reporting and disclosure on corporate investment: A review (2019, background): “Beatty et al. (2010) argue that one option for these firms is to lease the asset but leave the ownership of the asset with the lessor. Specifically, they predict and find that financially constrained firms with low financial reporting quality are more likely to invest in (off-balance sheet) leased a”
The Relation Between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity: REPORTING QUALITY AND FINANCING AND INVESTMENT (2014, unknown): “Following Chaney et al. [2012], we use state-level real estate prices.”
How Does Financial Reporting Quality Relate to Investment Efficiency (2009, unknown): “…contribute to a growing body of literature that studies relations between financial reporting quality and investment (e.g., Bens and Monahan, 2004; Biddle and Hilary, 2006; Bushman et al., 2006; Beatty et al., 2008; Francis and Martin, 2008; Hope and Thomas, 2008; McNichols and Stubben, 2008).”