Beyond the Balance Sheet - The first systematic evidence on variable lease adoption among European listed firms under IFRS 16

Sammanfattning

IFRS 16 Leases, effective January 2019, eliminated off-balance-sheet treatment for most lease obligations. However, variable lease payments linked to future performance or usage remain excluded from the lease liability, preserving an avenue for off-balance-sheet exposure. Using hand-collected data from a random sample of 251 European public firms spanning 2019-2024, this study provides the first systematic evidence on variable lease adoption in the IFRS setting. We document that approximately 30% of firms report variable lease expenses in any given year, and for those firms, they increase relative to capitalised lease expenses over time. We then examine whether adoption reflects reporting or operational incentives. Leverage, our main proxy for incentives, does not independently or as a moderator of lease intensity show a robust association with variable lease adoption. An exploratory cash-based analysis, however, finds that cash constraints amplify the effect of lease intensity, a pattern that persists among heavy-adopters. Overall, the results are more consistent with an operational financial-constraints channel rather than a reporting incentives channel. Finally, we find that variable lease expenses exhibit similar persistence and predictability to capitalised lease expenses, undermining the IASB's measurement reliability rationale for their exclusion. Estimated variable lease liabilities would raise debt by 2.8% on average, reaching 6.3% in Southern Europe.