The influence of operating leases on debt contracting

• In Event: Financial Accounting and Reporting 2

Abstract

Prior research provides evidence that a firm’s operating lease obligations influences the rating and pricing of some debt securities. What is missing from this evidence is whether a firm’s operating lease obligations influences the design of its debt contracts, and thereby its pricing through its design. We provide evidence that firms’ operating lease obligations influence the design of its debt and its rating, and thereby its initial pricing through its design. Altogether, our evidence points to the incorporation of information reported in the notes in debt contracting.

Authors

• Douglas O Cook, University of Alabama

• Robert Kieschnick, University of Texas at Dallas

• Rabih Moussawi, Villanova University