Leasing, ability to repossess, and debt capacity
Journal Article (Journal Article)
This paper studies the financing role of leasing and secured lending.We argue that the benefit of leasing is that repossession of a leased asset is easier than foreclosure on the collateral of a secured loan, which implies that leasing has higher debt capacity than secured lending. However, leasing involves agency costs due to the separation of ownership and control. More financially constrained firms value the additional debt capacity more and hence lease more of their capital than less constrained firms.We provide empirical evidence consistent with this prediction. Our theory is consistentwith the explanation of leasing by practitioners, namely that leasing preserves capital, which the academic literature considers a fallacy. (JEL D23, D92, E22, G31, G32, G33).
Full Text
Duke Authors
Cited Authors
- Eisfeldt, AL; Rampini, AA
Published Date
- April 1, 2009
Published In
Volume / Issue
- 22 / 4
Start / End Page
- 1621 - 1657
Electronic International Standard Serial Number (EISSN)
- 1465-7368
International Standard Serial Number (ISSN)
- 0893-9454
Digital Object Identifier (DOI)
- 10.1093/rfs/hhn026
Citation Source
- Scopus