<scp>IFRS</scp> 16 and Lease Substitution: Evidence From Australian Listed Firms

ABSTRACT This study investigates the economic consequences of IFRS 16 Leases for Australian listed firms, focusing on preparers' responses before adoption. Transitioning from the lease expense method to lease capitalisation significantly affected reported assets and liabilities, particularly for firms with long‐term or high‐value leases. Contrary to expectations, high‐lease firms did not reduce their non‐cancellable operating commitments which may reflect limited flexibility to alter operational models or the ability to renegotiate debt contract terms. However, an increase in capital expenditures among these firms following the issuance of IFRS 16 provides some evidence of a substitution effect between leasing and asset ownership.