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Soc. Sci. 2018, 7(9), 154; https://doi.org/10.3390/socsci7090154

The Effect of Lease Accounting on Credit Rating and Cost of Debt: Evidence from Firms in Korea

1
School of Smart Business, Yeungjin University, 35, Bokhyeon-ro, Buk-gu, Dalseo-gu, Daegu 702-721, Korea
2
Department of Accounting and Taxation, Keimyung University, Euiyang Hall 327, 1095, Dalgubeol-daero, Dalseo-gu, Daegu 704-701, Korea
*
Author to whom correspondence should be addressed.
Received: 30 July 2018 / Revised: 1 September 2018 / Accepted: 4 September 2018 / Published: 7 September 2018
(This article belongs to the Section Social Economics)
Full-Text   |   PDF [315 KB, uploaded 10 September 2018]

Abstract

This study examines the effect of capital lease and operating lease options in accounting on credit ratings and the cost of debt using data for 13 years (2001 to 2013) on 6133 listed and unlisted domestic firms in Korea that recognize leases on financial statements. We use the Heckman two-stage model to control for sample selection bias from lease selection. The first stage is the probit regression in which the dependent variable is a dummy variable on the lease selection and the explanatory variables are factors known to affect lease selection. The second stage consists of the ordered probit regression model and the ordinary least square regression model where the dependent variables are credit rating and cost of debt, respectively. The results show that lease selection does not significantly affect corporate credit ratings—however, in terms of the cost of debt, enterprises that adopt operating leases spend considerably less than firms that engage in capital leases. Further analysis suggests that the results for credit ratings do not differ by listing status. However, the cost of debt for listed companies does not seem to differ by lease selection, while unlisted firms see a sharp decline in their cost of debt when they choose operating leases over capital leases. View Full-Text
Keywords: lease; operating lease; finance lease; listed firms; unlisted firms; cost of debt lease; operating lease; finance lease; listed firms; unlisted firms; cost of debt
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Park, Y.; Na, K. The Effect of Lease Accounting on Credit Rating and Cost of Debt: Evidence from Firms in Korea. Soc. Sci. 2018, 7, 154.

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