JOURNAL OF ACCOUNTING AND FINANCE
Do Lenders Uniformly Capitalize Operating Leases in Debt Covenants?
Author(s): Bryan Graden
Citation: Bryan Graden, (2018) "Do Lenders Uniformly Capitalize Operating Leases in Debt Covenants?", Journal of Accounting and Finance, Vol. 18, ss. 5, pp.23-38
Article Type: Research paper
Publisher: North American Business Press
This study investigates whether lenders capitalize operating leases uniformly when defining debt
covenants. The purpose is to understand whether operating lease characteristics are correlated with debt covenant choices to make inferences regarding lenders’ demand for lease accounting rules. Using a hand-collected sample of lending agreements from firms that use operating leases extensively, I find a positive association between the probability of lenders capitalizing operating leases into debt covenants and the duration of borrowers’ lease contracts. The results indicate that lenders discriminate among operating leases when designing debt covenants and suggest that operating leases vary in their effect on credit risk.