Abstract
ABSTRACT Publicly traded restaurant companies account for the majority of their leases as operating leases. Under FASB 13, operating lease obligations are disclosed in the footnotes while capital leases are recognized on the balance sheet. Mainstream research suggests that it makes no difference to the market's assessment of risk whether the information is disclosed in the footnotes or recognized in the financial statements. This research shows that restaurant firms still prefer disclosure (operating leases) over recognition (capital leases) and suggests reasons drawn from both capital market and positive accounting research. Research results show operating leases obligations exceed capital lease obligations by a ratio of 9 to 1. Upon capitalizing operating leases, performance ratios change significantly. There is also a possibility that smaller restaurant firms use operating leases more than larger firms.
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