ECONOMIC CONSEQUENCES OF SAS 15 ON SINGAPOREAN FIRMS' LEASING POLICIES AND CAPITAL STRUCTURES

Abstract

This study explores the economic consequences of the lease capitalisation and disclosure rule change induced by SAS 15, "Accounting for Leases," on the leasing policies and capital structure of Singaporean lessee firms. Empirical tests are performed to determine whether capitalisation significantly induced changes in the amounts of finance leases, operating leases, or total leasing and equity and conventional (nonlease) debt used by lessees. Singaporean lessees may face lower costs of capitalisation than lessees in the US and other countries. The Singapore lease market is relatively less developed, and lessees may capitalise relatively non-material finance leases early to appear to follow what is perceived to be "good reporting practice". There may also have been an absence of market for keeping leases off balance sheet. Furthermore, the relatively less restrictive finance and operating lease classification requirements of SAS 15 may have encouraged the opportunistic behaviour of lessees to circumvent capitalisation requirements. Results are consistent with these suggestions. Characteristics of early versus late adopters of SAS 15 are also examined to explore the impact of its economic consequences on lessees' behaviour. This additional analysis was performed because the transitional period provided by the standard gave lessees the opportunity to delay costs of capitalisation. The analysis uses proxies for political costs, management compensation and debt convenants in order to obtain further insight into lessees' financing and financial reporting behaviour.