Abstract
This study investigates whether including operating lease commitments in financial distress prediction models would increase the classification accuracy of these models. Classification accuracy measures the percentages of correctly classified companies in either of the two categories (healthy or financially distressed). This study includes 38 listed companies in financial distress (of which 21 companies eventually went bankrupt) and 62 healthy companies in the period from 2000 to 2004. It is concluded that financially distressed companies use relatively more operating leases than healthy companies. However, the accuracy of the financial distress prediction models did not significantly improve by taking operating leases into account. These results may contribute to the discussion on which type of lease-accounting is preferred: the current method in which operating leases only appear in the notes to the financial statement, or the method of capitalizing financial and operating leases.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
