Accounting for Leases and Corporate Investment

Ciao Wei Chen, Maria Correia, Oktay Urcan

Research output: Contribution to journalArticlepeer-review


We examine the real effects of lease-capitalization rules (i.e., standards that require firms to capitalize finance leases) on corporate investment. We show that the introduction of these rules leads to a decrease in investment, which is more pronounced for firms with high reliance on leases. We posit and find that lease capitalization affects investment via a learning channel and a contracting channel. Regarding the first channel, we argue that managers identify areas of overinvestment and activities that should be discontinued or downsized because of the information they collect and analyze to comply with lease-capitalization rules. Accordingly, we find that the effect of lease capitalization is stronger when learning opportunities are higher. Regarding the second channel, we argue that lease capitalization affects investment via its effect on contracts. Accordingly, we document an increase in the likelihood of covenant breaches and a stronger decline in investment for financially constrained firms.

Original languageEnglish (US)
Pages (from-to)109-133
Number of pages25
JournalAccounting Review
Issue number3
StatePublished - May 2023


  • disclosure
  • investment
  • lease
  • real effects

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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