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

Thursday, May 1^st, 2025
11:30 a.m. to 1:00 p.m. CST
Zoom Webinar 

Please register at the link below: 

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.