We examine whether accounting recognition affects firms’ organizational form. China’s CAS 21 required listed firms to recognize most operating leases on the balance sheet, increasing the reported cost of company-owned expansion for lease-intensive chain firms. Using hand-collected store data for Chinese A-share firms from 2015 to 2022, we find that firms with greater pre-CAS 21 lease exposure increase franchising after CAS 21. The effect is stronger among financially constrained firms, non-state-owned enterprises, and firms with greater analyst coverage. CAS 21- induced franchising is subsequently associated with weaker brand sentiment, higher franchise closures, lower company-owned store revenue, and weaker long-term growth. The findings suggest that accounting recognition can reshape firm boundaries and induce strategic adjustments with adverse real consequences.
| Speaker: | Dr Yong Yu Cheng Tsang Man Professorship in Accountancy (Singapore Management University), C Aubrey Smith Professorship in Accounting (University of Texas at Austin) |
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