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Are Leases and Debt Substitutes? Evidence from Belgian Firms

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  • Marc Deloof
  • Ilse Verschueren

Abstract

Finance theory suggests that leases and corporate debt are substitutes. However, empirical evidence is mixed. The contribution of the present paper is to test the substitution hypothesis for a sample of 1,066 large Belgian non-financial firms for the 1992-1994 period, considering different debt categories, including intra-group loans. Belgium provides an interesting case to investigate the leasing decision because tax differences between lessor and lessee do not matter. We find that long-term bank debt and intra-group debt are substitutes for lease financing. However, we do not find a one-to-one relationship, which indicates that leases and long-term debt are not perfect substitutes.

Suggested Citation

  • Marc Deloof & Ilse Verschueren, 1999. "Are Leases and Debt Substitutes? Evidence from Belgian Firms," Financial Management, Financial Management Association, vol. 28(2), Summer.
    • Handle: RePEc:fma:fmanag:deloof99
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    Cited by:

    1. Kang, Sungjune & Long, Michael S., 2001. "The fixed payment financing decision: To borrow or lease," Review of Financial Economics, Elsevier, vol. 10(1), pages 41-55.
    2. Stefania Cosci & Roberto Guida & Valentina Meliciani, 2015. "Leasing Decisions and Credit Constraints: Empirical Analysis on a Sample of Italian Firms," European Financial Management, European Financial Management Association, vol. 21(2), pages 377-398, March.
    3. Chenchuramaiah T. Bathala & Oswald D. Bowlin & William P. Dukes, 2004. "Sources of Capital and Debt Structure in Small Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(1), pages 29-50, Spring.
    4. Cristiano Bellavitis & Igor Filatotchev & Dzidziso Samuel Kamuriwo & Tom Vanacker, 2017. "Entrepreneurial finance: new frontiers of research and practice," Venture Capital, Taylor & Francis Journals, vol. 19(1-2), pages 1-16, January.
    5. Beraza Garmendia, Ana & San José Ruiz de Aguirre, Leire & Retolaza Ávalos, José Luis, 2017. "Lankidetza ekonomia diruzaintza kudeaketan aplikatzea posible al da?," Revista de Dirección y Administración de Empresas, Universidad del País Vasco - Escuela Universitaria de Estudios Empresariales de San Sebastián.
    6. Sungjune Kang & Michael S Long, 2001. "The fixed payment financing decision," Review of Financial Economics, John Wiley & Sons, vol. 10(1), pages 41-55, March.
    7. Schmit, Mathias, 2004. "Credit risk in the leasing industry," Journal of Banking & Finance, Elsevier, vol. 28(4), pages 811-833, April.

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