Ifrs 16 (Leases) And Financial Ratios: Evidence From Indian Industries - An Empirical Panel Data Analysis

Abstract

The introduction of IFRS 16 (implemented in India as Ind AS 116) in 2019 transformed lease accounting by requiring companies to capitalise most leases on the balance sheet, replacing the previous operating/finance lease distinction. This has material implications for financial statement presentation, comparability, and performance evaluation. This study provides a comprehensive empirical investigation of the financial ratio effects of IFRS 16 on Indian non-financial firms across ten industries using panel data from FY 2016–17 to FY 2021–22. A sample of 156 NIFTY-500 companies is analysed across three years pre-adoption and three years post-adoption. The study employs descriptive statistics, paired sample t-tests, and advanced panel regression models including Fixed Effects (FE), Random Effects (RE), and robust regressions controlling for firm size, profitability, capital intensity, and industry effects.

The results show that IFRS 16 significantly increases leverage ratios (Debt-to-Equity, Liabilities-to-Assets), decreases asset turnover, and lowers Return on Assets (ROA). EBITDA margins improve substantially due to the reclassification of lease expenses into depreciation and interest. Industries with high lease dependence—aviation, retail, logistics, telecom, and hospitality—exhibit the strongest effects. Regression findings confirm that the presence of lease-intensive industries moderates the impact of IFRS 16, and robustness checks (including alternative specifications and winsorization) validate the stability of the effects. The study contributes to Indian accounting literature by providing cross-industry, multi-year evidence using advanced econometric techniques and highlights implications for valuation, lending contracts, and regulatory oversight.