Lease Accounting Standard (ASC 842), Temporary Book‐Tax Differences, and Capital Market Uncertainty

ABSTRACT Currently, the Financial Accounting Standards Board (FASB) is conducting a post‐implementation review of the Accounting Standards Codification (ASC) 842 lease accounting standard, which underscores the need for academic research regarding the performance and impact of the lease standard in the capital market. This study provides evidence through the lens of tax and capital market consequences. Specifically, we examine the impact of ASC 842 on market uncertainty via the mediator of temporary book‐tax differences (BTDs) for the sample period of 2016–2021. Using difference‐in‐difference analyses, we find that relative to control firms, treatment firms report higher temporary BTDs and experience greater market uncertainty. Further analysis shows that the increase in market uncertainty among treatment firms is driven mainly by the increase in temporary BTDs. Our study contributes to the leasing accounting literature and considers the implications of the ASC 842 lease accounting standard from the tax perspective and market reaction.