This paper evaluates the real effects of the new lease standard, ASC 842, on firms’ investment and operational outcomes. Using a sample of airline companies, we find that, subsequent to the promulgation of ASC 842 (2016–2018), public airlines reduce operating lease usage by about seven to ten percentage points relative to private airlines. The reduced lease usage is replaced by increased ownership, suggesting an equilibrium shift in firms’ investment due to changes in the cost-benefit tradeoffs associated with the operating lease classification. We also find evidence that the decline in lease usage hinders public airlines’ operational flexibility, as we observe more idle capacity in flights post-ASC 842. Facing excess capacity, public airlines seem to deploy their aircraft to shorter flying routes, raising the possibility of more wear and tear on the fleet. Overall, our evidence suggests that the new lease standard has intended and unintended real effects. Data Availability: Data are available from the public sources cited in the text.

We examine whether customer-base concentration has a differential impact on profitability for firms contracting with major government customers versus firms contracting with major corporate customers. We document that firm profitability increases with the concentration of major government customers, but decreases with the concentration of major corporate customers. We attribute the contrasting results to the differential impact of major government and corporate customers on demand uncertainty. Specifically, firms contracting with major government customers face lower demand uncertainty that enables them to realize more efficiency gains from customer-specific investments, whereas firms contracting with major corporate customers are exposed to higher demand uncertainty that reduces the efficiency of customer-specific investments. Overall, our study suggests that major government customers are unique and important in the composition of customer base, and they impact firm outcomes in a significantly different way than major corporate customers.

A growing literature investigates the association between stock return variation and several aspects of information and governance structures, in both a cross-country setting and a cross-firm setting within the U.S. Papers use either idiosyncratic stock return volatility or R2 as interchangeable measures of firm-specific return variation but report inconsistent results. An important reason for the differing interpretations is the assumption about whether lower R2 (or higher ) captures firm-specific news or noise. We document that higher (or equivalently, lower R2) resembles noise. In addition, we show, analytically and empirically, that different results obtain when using R2 or because the systematic risk inherent in the R2 metric is also correlated with the independent variable of interest. Therefore, we recommend that when assessing the association between R2 (or ) and some independent variable, researchers (1) control for elements of systematic risk and (2) triangulate their findings with other measures of information environment. Data Availability: The data in this study are available from commercial providers, e.g., WRDS, Compustat, CRSP, I/B/E/S.

We examine the cost-effectiveness, from the shareholders' perspective, of the accounting standards issued by the FASB during 1973–2009. We evaluate (1) the stock market reactions of firms affected by the standards surrounding events that changed the standard's probability of issuance; and (2) whether the market reactions are related, in the cross-section, to agency problems, information asymmetry, proprietary costs, contracting costs, and changes in estimation risk. The average standard is a non-event from the investors' perspective because 104 of the 138 standards examined are associated with no change in shareholder value. Nineteen (15) standards are associated with a decrease (increase) in shareholder value. Surprisingly, 25 standards are associated with an increase in estimation risk. In the cross-section, firms with higher levels of information asymmetry, lower contracting costs, and a decrease in estimation risk experience most positive returns.