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Evidence from Tax-Exempt Firms on Motives for Participating in Sale-Leaseback Agreements

  • Fayez A. Elayan

    (Dept. of Accounting, Brock University)

  • Thomas O. Meyer


    (Dept. of Marketing & Finance, Southeastern Louisiana University, SLU 10844, Hammond, LA 70402)

  • Jingyu Li

    (Dept. of Accounting, Brock University)

Registered author(s):

    Previous research finds evidence that tax factors motivate the participants in leasing transactions. Tax-arbitrage arguments predict that leasing participants gain when the lessor’s tax rate exceeds that of the lessee. The research employs a sample of effectively tax-exempt REIT lessors to explore alternative leasing motives. Changes in REIT qualification rules are examined to develop an Agency-Cost, and competing Income-Retention Hypothesis for lessors. The rules and changes suggest that REIT management has the incentive, motive and opportunity to make real-estate investments quickly. The evidence developed is consistent with agency-costs arising from the possibility that they may overpay for properties.

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    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 28 (2006)
    Issue (Month): 4 ()
    Pages: 381-410

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    Handle: RePEc:jre:issued:v:28:n:4:2006:p:381-410
    Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    1. Marcus T. Allen & Ronald C. Rutherford & Thomas M. Springer, 1993. "The Wealth Effects of Corporate Real Estate Leasing," Journal of Real Estate Research, American Real Estate Society, vol. 8(4), pages 567-578.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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    5. 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.
    6. Lynn M. Fisher, 2004. "The Wealth Effects of Sale and Leasebacks: New Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 619-643, December.
    7. Jaime R. Alvayay & Ronald C. Rutherford & William S. Smith, 1995. "Tax Rules and the Sale and Leaseback of Corporate Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 207-238.
    8. Lee, D Scott, 1992. " Management Buyout Proposals and Inside Information," Journal of Finance, American Finance Association, vol. 47(3), pages 1061-79, July.
    9. Chan, Su Han & Erickson, John & Wang, Ko, 2002. "Real Estate Investment Trusts: Structure: Structure, Performance, and Investment Opportunities," OUP Catalogue, Oxford University Press, number 9780195155341.
    10. Mann, Steven V & Sicherman, Neil W, 1991. "The Agency Costs of Free Cash Flow: Acquisition Activity and Equity Issues," The Journal of Business, University of Chicago Press, vol. 64(2), pages 213-27, April.
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    12. William G. Hardin, III & Marvin L. Wolverton, 1999. "Equity REIT Property Acquisitions: Do Apartment REITs Pay a Premium?," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 113-126.
    13. Allen, Paul R. & Sirmans, C. F., 1987. "An analysis of gains to acquiring firm's shareholders : The special case of REITs," Journal of Financial Economics, Elsevier, vol. 18(1), pages 175-184, March.
    14. Slovin, Myron B & Sushka, Marie E & Polonchek, John A, 1990. " Corporate Sale-and-Leasebacks and Shareholder Wealth," Journal of Finance, American Finance Association, vol. 45(1), pages 289-99, March.
    15. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    16. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    17. 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.
    18. Brent W. Ambrose & Peter Linneman, 2001. "Reit Organizational Structure and Operating Characteristics," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 141-162.
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