Evidence that market participants assess recognized and disclosed items similarly when reliability is not an issue

Brian Bratten, Preeti Choudhary, Katherine Schipper

Research output: Contribution to journalArticle

37 Scopus citations

Abstract

We provide evidence that disclosed items are not processed differently from recognized items when the disclosures are salient, not based on management estimates, and amenable to simple techniques for imputing as-if recognized amounts. For a sample of firms with both capital and operating leases, we find that as-if recognized amounts for leases are generally reliable and that both recognized lease obligations and disclosed lease obligations are associated with proxies for costs of debt and equity. The magnitudes of these associations are not statistically different across accounting treatments, suggesting that market participants impound as-if recognized operating lease obligations and recognized capital lease obligations similarly into costs of capital. Conditioning on the reliability of as-if recognized operating lease obligations, we find a difference in the association between recognized versus as-if recognized lease obligations and proxies for the costs of debt and equity when the operating lease disclosures are less reliable.

Original languageEnglish (US)
Pages (from-to)1179-1210
Number of pages32
JournalAccounting Review
Volume88
Issue number4
DOIs
StatePublished - Jul 1 2013
Externally publishedYes

Keywords

  • Costs of capital
  • Leases
  • Recognition vs. disclosure
  • Reliability

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Evidence that market participants assess recognized and disclosed items similarly when reliability is not an issue'. Together they form a unique fingerprint.

  • Cite this