According to a recent study from Jonathan A. Milian and E. Jin Lee at Florida International University, recognition of operating leases as a result of ASC 842, Leases, caused a significant one-time negative equity market reaction when 2019 quarterly earnings releases came out after companies first recognized leases.
The study, titled “Did the Recognition of Operating Leases Cause a Decline in Equity Valuations?” analyzed returns of stocks for over 2,000 companies during several trading day intervals around their earnings announcements or their recording of leases. It found companies with significant operating leases had significant increases in both assets and lease liabilities, which negatively impacted ratios like debt-to-equity, return on assets, and current ratios.
