Topic
Operating lease
About: Operating lease is a research topic. Over the lifetime, 208 publications have been published within this topic receiving 4437 citations.
Papers published on a yearly basis
Papers
TL;DR: In this article, the authors provide evidence that corporate tax status is endogenous to leasing decisions, which induces a spurious relation between measures of financial policy and many commonly used tax proxies, and demonstrate that leasing models generally predict that firms with low marginal tax rates employ relatively more leases than do firms with high marginal tax rate.
Abstract: We provide evidence that corporate tax status is endogenous to financing decisions, which induces a spurious relation between measures of financial policy and many commonly used tax proxies. Using a forward-looking estimate of before-financing corporate marginal tax rates, we document a negative relation between operating leases and tax rates, and a positive relation between debt levels and tax rates. This is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more, and have lower debt levels, than high tax rate firms. MANY THEORIES OF CAPITAL STRUCTURE imply that, all else equal, the incentive to use debt financing increases with a firm's marginal tax rate due to the tax deductibility of interest expense (e.g., Modigliani and Miller (1963), DeAngelo and Masulis (1980)). Conversely, leasing models generally predict that firms with low marginal tax rates employ relatively more leases than do firms with high marginal tax rates. The logic behind the leasinlg prediction is that leases allow for the transfer of tax shields from firms that cannot fully utilize the associated tax deduction (lessees) to firms that can (lessors) (e.g., Myers, Dill, and Bautista (1976), Smith and Wakeman (1985), Ross, Westerfield, and Jaffe (1996)). Despite these straightforward predictions, empirically testing for tax effects is difficult because a spurious relation exists between. the financing decision and many commonly used tax proxies. Specifically, both interest expense and lease payments are tax deductible. Thus, a firm that finances its operations with debt or leases reduces its taxable income, potentially lowering its expected marginal tax rate. If not properly addressed, this endogeneity of the tax rate can bias an experiment in favor of finding a negative
567 citations
371 citations
TL;DR: In this paper, the role of leasing of productive assets is investigated and it is shown that more credit constrained firms lease capital, while less credit-constrained firms buy capital, and that leasing gives rise to an agency problem with regard to the care with which the leased asset is used or maintained.
Abstract: This paper studies the role of leasing of productive assets. When capital is leased (or rented), it is more easily repossessed and hence leasing has higher debt capacity and relaxes financing constraints. However, leasing gives rise to an agency problem with regard to the care with which the leased asset is used or maintained. We show that this implies that more credit constrained firms lease capital, while less credit constrained firms buy capital. Our theory is consistent with the explanation of leasing provided by leasing firms, namely that leasing “preserves capital,” which is generally considered a fallacy in the academic literature. We provide empirical evidence that small and credit constrained firms lease a considerably larger fraction of their capital than larger and less constrained firms.
355 citations
TL;DR: In this article, the influence of financial contracting costs on public corporations' incentives to lease fixed capital is evaluated, and it is shown that firms facing high costs of external funds can economize on the cost of funding by leasing.
341 citations
TL;DR: In this article, the authors provide a unified analysis of the various incentives affecting the lease-versus-buy decision and show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering.
Abstract: The existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax-related incentives for corporate leasing policy. Our analysis suggests that taxes are important in identifying potential lessees and lessors, but are less important in identifying the specific assets leased. We provide a unified analysis of the various incentives affecting the lease-versuspurchase decision. We then show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering. WHEN A FIRM BUYS AN ASSET, it obtains both the right to the services of that asset over the period it is owned plus the right to sell the asset at any future date. With a lease, the firm acquires only the right to the asset's services for a period specified in the contract. The existing finance literature analyzing corporate leasing policy concentrates on the tax-related incentives to lease or buy (e.g., see Miller and Upton [19], Myers et al. [21], Lewellen et al. [13], Franks and Hodges [11], and Brealey and Young [4]). We believe that taxes play an important role in explaining certain dimensions of leasing policy, for example, the choice between manufacturer and third-party leasing. However, taxes provide only a limited explanation of why specific assets are leased rather than owned, and for the choice of provisions in lease contracts. In this paper, we want to accomplish two things: (1) to provide a unified analysis of the various incentives affecting the lease-versus-buy decision and (2) to employ that analysis to explain observed variation in corporate leasing policy. In deriving testable hypotheses about the characteristics of lessees, lessors, the assets leased, and provisions in lease contracts, we extend the standard leaseversus-buy analysis found in corporate finance textbooks (e.g., Brealey and Myers
338 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 11 |
| 2020 | 9 |
| 2019 | 13 |
| 2018 | 18 |
| 2017 | 8 |
| 2016 | 15 |