On Wed, March 4th, we will be joined (once more) by Danielle Zeyher, FASB Project Manager of the joint FASB/IASB leasing project.  In addition to getting an update on the status of the project, we will also have an open discussion of the extent to which academic research can inform standard setters.  As a springboard for this discussion, I will present some preliminary results from a new empirical research project I am conducting with Nir Yehuda (Cornell).  Prior research (e.g., Ely 1995) has shown that financial market prices behave as if investors capitalize minimum operating lease payments, and some take this as an indication that accounting standards should therefore capitalize such lease payments.  However, Nir and I use similar methods to show that financial market prices behave as if investors also capitalize other fixed operating expenses—thus, those buying into the argument that “the market capitalizes it, therefore accounting standards should too” may be in the uncomfortable position of arguing that standards should capitalize predictable outflows that are not associated with any legal liability.

This discussion will undoubtedly echo the debate over the value-relevance literature, which applies to a number of other standards as well.  Those unfamiliar with this debate should take a look at the 2000 JAE conference papers by Holthausen and Watts (), who raise a number of concerns about the literature, and Barth, Beaver and Landsman, who defend it.

Join us!