Effect of IFRS 16 on the Value Relevance of Lease Accounting Information

[Purpose] The purpose of this study is to investigate whether the introduction of K－IFRS 1116 affected the value relevance of lease accounting information. [Methodology] This study sets the period from 2016 to 2021 as testing period, and uses samples listed on the KOSPI and KOSDAQ, excluding companies in financial sector. This study used hand－collected operating lease information for the samples in the period from 2016 to 2018, when the K－IFRS 1017 was used as the lease accounting standard. After the hand collection, this study uses the as－if capitalization method to estimate the capitalized amount of lease liabilities. Also, this study used Ohlson(1995)’s method to test the change in the value relevance of lease liability. [Findings] Empirical findings suggest that the value relevance of lease information enhanced after the adoption of K－IFRS 1116. Such finding suggests that the usefulness of lease accounting information increased as the disclosed lease accounting information under K－IFRS 1017 is capitalized and recognized on the face of financial statement under K－IFRS 1116. Furthermore, additional test results reveal that the effect of the change lease accounting standard is stronger for those companies with lower accounting quality. [Implications] This study contributes to the industry that the revised lease accounting standard enhanced the usefulness of financial statements by providing empirical evidence. Furthermore, this study contributes to the academia by providing additional empirical evidence for the disclosure versus recognition literature.