Capital market imperfections and the incentive to lease

Capital market imperfections and the incentive to lease This paper evaluates the influence of financial contracting costs on public corporations' incentives to lease fixed capital. We argue that firms facing high costs of external funds can economize on the cost of funding by leasing. We construct several measures of leasing propensity, plus some a priori indicators of the severity of financial constraints facing firms. We find that the share of total annual fixed capital costs attributable to either capital or operating leases is substantially higher at lower-rated, non-dividend-paying, cash-poor firms — those likely to face relatively high premiums for external funds. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Capital market imperfections and the incentive to lease

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0304-405x
D.O.I.
10.1016/0304-405X(95)00830-8
Publisher site
See Article on Publisher Site

Abstract

This paper evaluates the influence of financial contracting costs on public corporations' incentives to lease fixed capital. We argue that firms facing high costs of external funds can economize on the cost of funding by leasing. We construct several measures of leasing propensity, plus some a priori indicators of the severity of financial constraints facing firms. We find that the share of total annual fixed capital costs attributable to either capital or operating leases is substantially higher at lower-rated, non-dividend-paying, cash-poor firms — those likely to face relatively high premiums for external funds.

Journal

Journal of Financial EconomicsElsevier

Published: Oct 1, 1995

References

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