Financial constraint and the choice between leasing and debt

Lin, Jane Raung; Wang, Chia Jane; Chou, De Wei; Chueh, Fei Chun

doi:10.1016/j.iref.2012.09.012

Cited by 29 publications

(19 citation statements)

References 24 publications

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“…Our research shows that if operating lease information is presented in accordance with international accounting standard IFRS 16, it has a significant positive influence on the quality of decision-making by the professional users (investors, analysts, etc.) and validates existing theory on this subject, as provided by Wilkins and Zimmer (1983), Durocher and Fortin (2009), Gross et al (2014), Lin et al (2013), Spencer and Webb (2015) and Paik et al (2015).…”

Section: Discussionsupporting

confidence: 86%

“…Rampini and Viswanathan (2013) indicate that "in our view, this evidence provides a strong case, that leased capital cannot be ignored if one wants to understand the capital structure". Findings from Lin, Wang, Chou, and Chueh (2013) also support the theory that leases provide additional financing capacity, especially when firms experience financial constraints.…”

Section: Literature Reviewsupporting

confidence: 55%

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Leases on balance, a level playing field?

Kints

Spoor

2019

Advances in Accounting

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Due to changes in lease agreements accounting standards, firms will soon have to recognize operating lease obligations that historically have been kept off-balance sheets (OBS). Research indicates that this change will have substantial effects on the presentation of the financial position and results of firms involved. It is also expected that this will affect decision-making by stakeholders such as boards, managers, bankers and financial analysts. Although it is assumed that these professionals consider all relevant information, it is also known that the smaller the chance of relevant information being overlooked, the better the decision-making. In this study we examine whether IFRS 16 has that positive effect. The results from this research suggest that the accounting treatment under IFRS 16 contributes to the quality but not necessarily to the ease of making investment financing decisions. that determining lease expenses based on capital leases is more economical for market participants. Although research (Graham & King, 2013) indicates that some leased assets should be capitalized at the assets' purchase price (whole asset value), current practice is that leased assets are capitalized at the present value of future minimum lease payments (right-of-use asset value). From January 1, 2019, companies will be compelled to comply with the introduction of IFRS 16 to capitalize their operating lease liabilities. This change may play an important role in the quality of investment financing decision-making based on that information. The International Accounting Standards Board (IASB) is fully convinced of the importance of this role, as evidenced by their decision to adapt the prevailing International Financial Reporting Standards. Hans Hoogervorst, IASBchairman, explains the new requirements: "These new accounting requirements bring lease accounting into the 21 st century, ending the guesswork involved when calculating a company's often-substantial lease obligations. The new standard will provide much-needed transparency on companies' lease assets and liabilities, meaning that off-balance sheet lease financing will no longer be lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy." According to earlier research by Cornaggia et al. (2013), Singh (2012) and Wicker and Young (2011), it can be expected that the change in rules will influence the evaluation of financial ratios of leasing firms. Similarly, Hales, Venkataraman, and Wilks (2012) argue

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Section: Discussionsupporting

confidence: 86%

Section: Literature Reviewsupporting

confidence: 55%

Leases on balance, a level playing field?

Kints

Spoor

2019

Advances in Accounting

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“…Firms with more tangible assets prefer leasing to borrowing. So, it is shown that this kind of firms use more operational leasing by surveying a sample of 4158 firms from Compustat North America for the period of 1991 to 2005 (Lin et al, 2013). In another survey, Redman et al (Mukherjee, 1991) has worked on sources of funds to acquire real estate.…”

Section: Literature Reviewmentioning

confidence: 99%

“…For instance, the lessor has to pay less tax and the lessee can buy the asset at the end of the period in some kinds of leases. Another benefit for the lessor is during bankruptcy procedure because, he could return the leased asset to lessee and break to pay more money to him (Lin et al, 2013). In the leasing contract, the period of lease should be specified.…”

Section: Introductionmentioning

confidence: 99%

Rent pricing decision support mathematical model for finance leases under effective risks

Rabbani¹,

Shadab²,

Gaeini³

et al. 2015

JEMC

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Nowadays, leasing has become an increasingly important and popular method for equipment acquisition. But, because of the rent pricing difficulties and some risks that affect the lessor and lessee's decision making, there are many people that still tend to buy equipment instead of lease it. In this paper we explore how risk can affect the leasing issue support mathematical model. For this purpose, we consider three types of risk; Credit risk, Transaction risk and Risk based pricing. In particular, our focus was on how to make decision about rent pricing in a leasing problem with different customers, various quality levels and different pricing methods. Finally, the mathematical model has been solved by Genetic Algorithm that is a search heuristic to optimize the problem. This algorithm was coded in MATLAB ® R2012a to provide the best set of results.

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“…Hegde 2010; Landry, Fortin and Callimaci, 2013), may clearly be relevant to compensation structure, leverage and debt structure. The number of studies have found a negative relation between firm size and leasing(Luo, 2011;Lin et al, 2013), because large firms are more likely to finance with debt, are more diversified, have more stable cash flows and can easily exploit economies of scale in external financing.…”

mentioning

confidence: 99%

Leasing Puzzle in Polish Small Firms Listed on the Alternative Market

Jaszczuk

Białek‐Jaworska

Opolski

et al. 2018

Central European Economic Journal

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In this article, we study the substitution between leasing and bank loans in financing the investment of small companies. The analysis is based on financial information about Polish companies listed on NewConnect, which used financial leasing in the period of 2012–2016. We argue that leasing and bank loans are the substitute in financing the investment of small companies. We estimate the probability of financial leasing and its size using the tobit and logit models. We find that financial leasing and bank loan, for Polish small companies, are complementarity. Our empirical results indicate that financial leasing and bank loans are complementary sources of financing investment in fixed assets. Also the higher the usage of financial leasing, the higher the likelihood that the enterprise is indebted because of long-term bank loan – complementarity.

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Financial constraint and the choice between leasing and debt

Cited by 29 publications

References 24 publications

Leases on balance, a level playing field?

Leases on balance, a level playing field?

Rent pricing decision support mathematical model for finance leases under effective risks

Leasing Puzzle in Polish Small Firms Listed on the Alternative Market

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