The Leasing Puzzle

Ang, James S.; Peterson, Pamela P.

doi:10.2307/2327612

Cited by 54 publications

(74 citation statements)

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“…In(EBJT) = a + bln(Q) + Zl A similar time-series regression approach to calculate DOL was used in a contemporary paper by Ang and Peterson (1984). In the same vein, the parameter d in the equation:…”

Section: Review Of the Literaturementioning

confidence: 99%

Properties of time‐series estimates of degree of leverage measures

Lord

1998

The Financial Review

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Empirical studies suggest that time-series regression estimates of the degrees of operating and financial leverage have a tendency to produce measures less than one. According to ex ante theory, these measures should be greater than one for firms operating above the breakeven point. There have also been suggestions that the biases in these estimates may be attributable to an underlying increase in unit sales. This work presents evidence that these counter-intuitive measures are produced by changes in the firm's operating parameters (unit price, variable cost, fixed cost and interest payments). It further suggests that attempts to control for the underlying change in unit sales substantially increase the volatility of predicted estimates.

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Section: Review Of the Literaturementioning

confidence: 99%

Properties of time‐series estimates of degree of leverage measures

Lord

1998

The Financial Review

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“…Smith and Wakeman (1 985) discuss such differences between leasing and nonleasing firms and conclude that "[al]though leasing and debt are substitutes for a given firm, looking across firms, characteristics of firms' investment opportunity sets which provide high debt capacity also tend to provide more profitable leasing opportunities" (p. 907). To address this issue, Ang and Peterson (1984) compare leasing and nonleasing firms on the basis of operating risk, profit, expected growth, size, and liquidity, but they conclude that these factors do not explain their finding of higher debt-equity ratios for leasing firms.…”

Section: Empirical Modelmentioning

confidence: 99%

Substitutability of Leases and Debt in Corporate Capital Structures

Marston

Harris

1988

Journal of Accounting, Auditing & Finance

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Finance theory suggests that leases and debt are substitutes. Surprisingly, however, prior empirical research using jinancial statement data has been unable to verify this trade-off between the two forms ofjinancing. This study re-examines the issue of substitutability by comparing changes in lease and debt jinancing over a six-year horizon for a large sample of US. jirms. The empirical results strongly support the theoretical contention that leases and debt are substitutes and is thus consistent with evidence from surveys of lending oficers. There is some evidence, however, thatjirms do not view leases as displacing nonleasing debt on a dollar-for-dollar basis.

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“…Even after the issuance of Statement Number 13 by the Financial Accounting Standards Board (FASB) in 1976, the debate in the USA over the true relationship between leases and debt coupled with the various forms of disclosure remained unresolved (see Ang and Peterson, 1984). Under this particular pronouncement, long-term noncancelable leases were to be capitalized by the lessee (and referred to as a financial lease) if any one of the following criteria were met:…”

Section: Review Of the Leasing Controversymentioning

confidence: 99%