Leasing, Ability to Repossess, and Debt Capacity

Abstract

The research program of the Center for Economic Studies (CES) produces a wide range of theoretical and empirical economic analyses that serve to improve the statistical programs of the U.S. Bureau of the Census. Many of these analyses take the form of CES research papers. The papers are intended to make the results of CES research available to economists and other interested parties in order to encourage discussion and obtain suggestions for revision before publication. The papers are unofficial and have not undergone the review accorded official Census Bureau publications. The opinions and conclusions expressed in the papers are those of the authors and do not necessarily represent those of the U.S. Bureau of the Census. Republication in whole or part must be cleared with the authors.

Financial Reporting Quality, Private Information, Monitoring, and the Lease-versus-Buy Decision

“…These results are consistent with the results in Eisfeldt and Rampini (2008) and Sharpe and Nguyen (1995) that firms that are more likely to have financing constraints have a greater propensity to lease. We also find that AccQual has a significant negative coefficient, indicating that worse accounting quality is associated with a greater leasing propensity for firms with a high lead arranger ownership in bank loans.…”

“…1 This oversight seems especially important since both Eisfeldt and Rampini (2008) and Sharpe and Nguyen (1995) find that firms facing greater financing constraints have a higher propensity to make off-balance sheet lease investments. Specifically, failing to consider the substitution between leasing and buying is likely to affect the inferences drawn from research examining the association between financial reporting quality and investment.…”

“…the proportion of assets that the firm leases). Both Sharpe and Nguyen (1995) and Eisfeldt and Rampini (2008) argue that leases provide creditors with more security, higher priority in bankruptcy, and an effective way of reducing adverse selection and moral hazard problems that arise from information asymmetries.…”

“…Following Sharpe and Nguyen (1995) and Eisfeldt and Rampini (2008), we include three variables to capture the financing constraints: Nodiv, Unrated and Rating. Non-dividendpaying firms are expected to have more financing constraints and therefore are more likely to lease.…”

A Longitudinal Study of Equipment Leasing in the U.S. Lodging Industry

“…Schmidgall & Upneja (2001) found that the main reasons for equipment leasing were to avoid obsolescence, to obtain tax benefits, and to sustain cash flow. Eisfeldt & Rampini (2006) argued that the benefit of leasing is that repossession of a leased asset is easier than foreclosure on the collateral of a secured loan, which implies that leasing has higher debt capacity than secured lending. Dafnis (2008) also argued that lease financing can be used to bundle a broad range of assets needed for property improvement plans.…”