The Implication of Operating Leases Capitalization on Cost of Equity: Evidence from Thailand
Post by MSF Chula at Monday, 27 August 2018 04:55 PM

This paper examines whether investors who trade in the Stock Exchange of Thailand between 2008 and 2016 incorporate the operating lease obligations in determining the cost of equity and whether those investors perceive debts, finance leases, and operating leases differently in determining the cost of equity. The cost of equity is computed from Gebhardt et al. (2001)’s method, Easton (2004)’s method or an average of those two methods. Based on descriptive statistics, the mean of capitalized operating lease obligations (OL) of company in the Stock Exchange of Thailand is relatively lower than in the NYSE, AMEX, and NASDAQ around 0.1101 (0.1362-0.0261). This is consistent with statistics provide by International Accounting Standards Board (IASB) that the percentages of companies that disclose operating lease obligations according to the region are 62% in North America, 47% in Europe, 43% in Asia/Pacific, 23% in Latin America and 23% in Africa/ Middle East (IFRS Foundation, 2016). From regression analysis, I find that investors positively consider operating lease obligations in determining the cost of equity. Additionally, there are evidences that the coefficient of the long-term debt is less than the coefficient of the operating lease obligations which mean investors perceive the level of long-term debt less than the level of operating leases in determining the cost of equity. Furthermore, the coefficient of the finance lease obligations is higher than the coefficient of the operating lease obligations which mean investors perceive the level of finance leases higher than operating leases in determining the cost of equity.

Last updated at Monday, 27 August 2018 04:55 PM