IFRS 16 and Its Impact on NFP and EBITDA: A Theoretical and Empirical Analysis in European Companies

Purpose: For a long time, the IASB and the FASB have worked jointly to find a solution to improve the transparency in the financial statements of lessees, as requested by a large group of stakeholders. This was to better highlight the implicit debt incorporated in some lease contracts and eliminate the distinction between operating and finance leases. The objective of this paper is twofold: on one hand, to define a theoretical analysis of the changes brought about by the adoption of the new IFRS 16 on corporate performance; on the other hand, it aims to analyze through a multiple linear regression analysis the impacts on the financial statements of listed companies of the new IFRS 16 (mandatorily adopted from 2019) and to verify whether companies have quantified the most significant alternative performance indicators, in particular NFP and EBITDA, considering the values determined with the new standard. Methodology: This work proposes a primary study based on the financial statements of listed companies with the following aims: (A) Provide a theoretical analysis of the changes introduced by IFRS 16; (B) Evaluate the impact of IFRS 16 on the financial statements; (C) Define the choices in terms of defining the most important alternative performance indicators (NFP and EBITDA). The analysis of any adjustments made to NFP and EBITDA to neutralize the effects of IFRS 16 can help to understand whether the financial statement values quantified according to the standard help to define the fundamental performance measures better or undermine their significance. Originality and Practical Implications: The article is novel because it aims to describe and evaluate how the introduction of the new accounting standard IFRS 16 might influence the performance, at the balance sheet level, of listed companies. Furthermore, the distinctive feature of this project is that, at least for now, in Europe, no study has yet been conducted on this matter, as no study has focused on what concerns alternative performance principles, always focusing on performance indicators (profitability, liquidity, financial structure). The results of this research could be relevant to raise awareness of what the introduction of this standard has entailed and, above all, the potential benefit brought to investors. The topic appears particularly timely as European rules on leasing and similar contracts still need to be developed, and the study could provide useful elements for assessing the significance of the information prepared by applying this standard.