In contrast to other types of debt, the value of operating leases on the firm’s balance sheet is set by the firm. Using new information on operating leases from ASC 842, we examine firm behavior in valuing these leases, specifically, discount rate choices. Based on benchmarks we develop, we find that 20% of firms choose higher discount rates than expected. We consider potential motives for these choices. We find that financially fragile firms systematically choose higher discount rates, apparently to appear healthier. These firms also tend to be more informationally opaque and are less-heavily monitored by outsiders.​

Keywords: ASC 842, Discount Rate, Operating Lease, Leverage.

JEL Classification: G00, G30, G31, G32