Strategic Stock Repurchases in Response to K-IFRS No. 1116: Implications for Real Earnings Management Strategies1)

The new lease accounting standards, K-IFRS No. 1116, have required firms to classify leases, except for short-term or smaller leases, as financial leases. These revised standards have brought significant changes to the financial statements. Based on this, our study investigates how K-IFRS No. 1116 affects firms’ real earnings management, particularly focusing on stock repurchases. Using Korean lease firms from 2017 to 2020, we find that firms with numerous leases tend to engage more in stock repurchases following the new standard, indicating that stock repurchases are employed as a strategy to mitigate the standard’s impact on earnings per share (EPS). Moreover, this effect is more pronounced in cases of lower audit efforts and lower dividend payout ratios, indicating a link to reduced oversight and earnings consistency. Our main findings are consistent even after in the matched sample using the propensity score matching analysis. This study fills a research gap by examining how lease firms respond to K-IFRS No. 1116 and its impact on their stock repurchase decisions. Furthermore, it enhances the overall understanding of the implications of the accounting standard for lease firms and provides practical implications for both policymakers and researchers.