[cid:b52cb596-22bf-4160-be3b-a316c504096a]
Please join us for an installment of the 2024–2025 Asper School of Business Eminent Scholar Series:
The Impact of ASC 842 Adoption on Labor Investment Efficiency
Presented by Dr. Nerissa Brown
Associate Dean of Graduate Programs Professor of Accountancy Chief Learning Innovation Officer Josef and Margot Lakonishok Faculty Fellow PwC Faculty Fellow Gies College of Business, University of Illinois Urbana-Champaign
Thursday, May 1st, 2025 11:30 a.m. to 1:00 p.m. CST Zoom Webinar
Please register at the link below:
https://ca01web.zoom.us/webinar/register/WN_UT6KRVkOTVSM9-OXTrvHHQ
Presentation Abstract:
We examine the labor investment consequences of ASC 842, the revised lease standard which requires the recognition of operating leases on the balance sheet. Research finds that operating lease recognition under ASC 842 constrains firms’ financial and operational flexibility and tilts their capital resources toward buying versus leasing. However, an overlooked consequence is the impact of operating lease recognition on labor investment. Using a difference-in-differences research design, we examine changes in labor investment efficiency, such as hiring and firing practices, following the adoption of ASC 842. We find that firms with high operating lease commitments underinvest in labor during and immediately after the adoption year. This result suggests that operating lease recognition leads to workforce reduction as a cost-cutting response to financial constraints induced by the standard change. We further find that this underinvestment response (which can manifest as over-firing or under-hiring) harms employee perceptions of the firm and its management and dampens analyst expectations of firm performance. Taken together, our results highlight the unintended consequences of ASC 842, offering insights into how accounting standards can impact resource allocation and stakeholder perceptions.
