Bankruptcy Costs and the Financial Leasing Decision
AbstractThe theory of financial leasing views financial leases as substitutes for secured debt. Empirical studies have reported a high positive correlation between lease ratios and debt ratios and that lessors earn higher rates of return than lenders. These results contradict traditional leasing theory. They are explained in this paper by recognizing the role bankruptcy costs play in the lease/borrow decision and the nature of the assets to be acquired by a firm. Leasing is shown to involve lower bankruptcy costs than borrowing. Our empirical analysis shows that lessee firms have lower retained earnings relative to total assets, higher growth rates, lower coverage ratios, higher debt ratios, and higher operating risk than non-lessee firms. Lessee firms also have significantly lower Altman Z-scores, a measure of bankruptcy potential. Overall, our results indicate that as bankruptcy potential increases, lease financing becomes an increasingly attractive financing option. We also find evidence to support an industry clientele effect in financial leasing.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 23 (1994)
Issue (Month): 2 (Summer)
Contact details of provider:
Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331 Tampa, FL 33620
Web page: http://www.fma.org/
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Steven A. Sharpe & Hien H. Nguyen, 1994.
"Capital market imperfections and the incentive to lease,"
Finance and Economics Discussion Series
94-5, Board of Governors of the Federal Reserve System (U.S.).
- Sharpe, Steven A. & Nguyen, Hien H., 1995. "Capital market imperfections and the incentive to lease," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 271-294.
- Lee, Michael, 2010. "Auswirkung des Leasings auf die Fremdkapitalkapazität," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 8(2), pages 53-70.
- Alain Capiez, 2000. "Evaluation du crédit-bail et risque de crédit," Post-Print halshs-00587435, HAL.
- Ezzell, John R. & Vora, Premal P., 2001. "Leasing versus purchasing: Direct evidence on a corporation's motivations for leasing and consequences of leasing," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 33-47.
- Chemmanur, Thomas & Jiao, Yawen & Yan, An, 2010. "A theory of contractual provisions in leasing," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 116-142, January.
- repec:hal:cesptp:hal-00204911 is not listed on IDEAS
- Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.
- repec:hal:wpaper:hal-00325117 is not listed on IDEAS
- Branch, Ben, 2002. "The costs of bankruptcy: A review," International Review of Financial Analysis, Elsevier, vol. 11(1), pages 39-57.
- Landry, Suzanne & Fortin, Anne & Callimaci, Antonello, 2013. "Family firms and the lease decision," Journal of Family Business Strategy, Elsevier, vol. 4(3), pages 176-187.
- Jacques Sarremejeanne, 2011. "Les déterminants financiers des cessions-bail," Post-Print hal-00650571, HAL.
- Du, Julan & Leung, Charles Ka Yui & Chu, Derek, 2013. "Return enhancing, cash-rich or simply empire-building? An empirical investigation of corporate real estate holdings," MPRA Paper 44253, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors) The email address of this maintainer does not seem to be valid anymore. Please ask Courtney Connors to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.