Determinants of leasing propensity in Canadian listed companies
Purpose - The purpose of this paper is to examine the relationship between a firm's propensity to lease and several firm characteristics: tax position, financial constraint, ownership structure, growth, and size. Design/methodology/approach - Controlling for industry, total lease share, operating and capital lease share ratios, obtained using an income statement approach, are regressed on a trichotomous tax variable, a dichotomous cash flow coverage ratio variable, debt over fixed assets, ownership concentration, market to book value of shares and the natural log of sales. Findings - Total lease share increases with leverage, tax position and growth; it decreases with cash flow coverage, ownership concentration and firm size. Results for operating lease share are similar to those for total lease share. In contrast, capital lease share decreases with tax position and increases with ownership concentration and size. Research limitations/implications - The results suggest that leasing offers added debt capacity and increases in financially constrained firms. Firms that pay high taxes seem to place more value on the constant stream of tax deductions from the rental payments than on deductions from decreasing interest costs and amortization. Finally, highly concentrated Canadian firms may use less leasing because they are more family-controlled. Originality/value - The literature offers mixed reasons for firms' decisions to lease or purchase assets. This study provides further evidence in a rich setting. In 2001, the Canadian tax authorities changed the tax treatment of leases, thus providing an opportunity to validate prior results on the impact of taxes on leasing. By including two different measures of financial constraint, this study disentangles the substitution and the added debt capacity hypotheses.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 7 (2011)
Issue (Month): 3 (June)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=ijmf Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Priority Structure of Corporate Liabilities," Journal of Finance, American Finance Association, vol. 50(3), pages 899-917, July.
- Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- 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.
- 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.).
- M.Ameziane Lasfer & Mario Levis, 1998. "The Determinants of the Leasing Decision of Small and Large Companies," European Financial Management, European Financial Management Association, vol. 4(2), pages 159-184.
- Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
- Andrea L. Eisfeldt & Adriano A. Rampini, 2009. "Leasing, Ability to Repossess, and Debt Capacity," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1621-1657, April.
- Andrea Eisfeldt & Adriano Rampini, 2006. "Leasing, Ability to Repossess, and Debt Capacity," 2006 Meeting Papers 461, Society for Economic Dynamics.
- Adriano Rampini & Andrea Eisfeldt, 2007. "Leasing, Ability to Repossess, and Debt Capacity," Working Papers 07-19, Center for Economic Studies, U.S. Census Bureau.
- Graham, John R., 1996. "Proxies for the corporate marginal tax rate," Journal of Financial Economics, Elsevier, vol. 42(2), pages 187-221, October.
- Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
- Lewis, Craig M. & Schallheim, James S., 1992. "Are Debt and Leases Substitutes?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 497-511, December.
- Stulz, ReneM. & Johnson, Herb, 1985. "An analysis of secured debt," Journal of Financial Economics, Elsevier, vol. 14(4), pages 501-521, December.
- Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
- Mike Adams & Philip Hardwick, 1998. "Determinants of the leasing decision in United Kingdom listed companies," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 487-494.
- Hamid Mehran & Robert A. Taggart & David Yermack, 1999. "CEO Ownership, Leasing, and Debt Financing," Financial Management, Financial Management Association, vol. 28(2), Summer.
- Smith, Clifford W, Jr & Wakeman, L MacDonald, 1985. " Determinants of Corporate Leasing Policy," Journal of Finance, American Finance Association, vol. 40(3), pages 895-908, July.
- Ang, James & Peterson, Pamela P, 1984. " The Leasing Puzzle," Journal of Finance, American Finance Association, vol. 39(4), pages 1055-1065, September.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eme:ijmfpp:v:7:y:2011:i:3:p:259-283. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.