THE IMPLICATIONS OF THE AGENCY-CONTRACTING THEORY OF THE FIRM FOR CORPORATE ACCOUNTING POLICY DECISIONS: THE CASE OF ACCOUNTING FOR LEASES BY LESSEES.
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Title
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THE IMPLICATIONS OF THE AGENCY-CONTRACTING THEORY OF THE FIRM FOR CORPORATE ACCOUNTING POLICY DECISIONS: THE CASE OF ACCOUNTING FOR LEASES BY LESSEES.
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Identifier
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AAI8501129
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identifier
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8501129
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Creator
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EL-GAZZAR, SAMIR MOHAMED.
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Contributor
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Steven B. Lilien
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Date
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1984
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Language
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English
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Publisher
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City University of New York.
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Subject
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Business Administration, Accounting
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Abstract
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This research has a two-fold objective. First, using the agency/contracting theory of the firm, the study provides a model for lessees accounting policy decision for leases (prior to the mandates of Statement of Financial Accounting Standards, SFAS, No. 13). Second, given the firm already selected the optimal accounting policy that goes along with its investing and financing environment, the study provides an analysis for the economic impact of mandating SFAS No. 13, and identifies the conditions under which such exogenous policy can stimulate economic consequences.;The study argues that, under uncertainty of management behavior, monitoring and contracting activities have become essential characteristics to the existence of the firm. Because most monitoring and contracting agreements are based on accounting variables, managements are motivated to select the set of accounting policies that relaxes the constraints which arise from these monitoring/contracting agreements.;The study hypothesizes that lessees' choices of the accounting treatment for leases are influenced by the factors of: (1) debt financing and debt covenants; (2) corporate performance and political costs; (3) management compensation plans; and (4) growth in leasing activities. The study also hypothesizes that the mandates of SFAS No. 13 reduced the discretion of management choice of accounting for leases. Complying with SFAS No. 13 would cause violation of ex ante agreements, which increase the probability of technical default, and increase management accounting exposure. To cope with these consequences, management may alter its operating and financing policies. Alterations of investing and financing policies produce real economic impact.;From the 1977 Accounting Trends and Techniques, two groups of lessees were identified. Group one (capitalizers) consists of 41 firms that capitalized all of their leases both prior and subsequent to the mandates of SFAS No. 13. Group two (noncapitalizers) consists of 113 firms that did not capitalize all of their leases prior to SFAS No. 13, but were forced to capitalize them in compliance with SFAS No. 13. The discriminant analysis function and the probit regression model were used to test for the determinants of accounting for leases. The empirical results support the hypotheses.;For the economic impact test, the 113 noncapitalizing lessees were partitioned into four portfolios in terms of: (1) the level of the impact of capitalizing off-balance sheet leases on outstanding debt; and (2) the rate of growth in expected (3-5 years) earnings. The market test was conducted for these portfolios in comparison to the 41 capitalizers. The empirical results indicate that there had been a differential market reaction in terms of debt financing levels and the levels of corporate growth.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
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Program
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Business(Accounting)
