Leases, debt and taxable capacity

Adedeji, Abimbola; Stapleton, Richard C.

doi:10.1080/096031096334484

Cited by 34 publications

(57 citation statements)

References 15 publications

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“…Further, regression-based analyses confirm that companies behave as if lease finance is complementary to (US: Ang and Peterson, 1984), or only a partial substitute for debt finance (US: Marston and Harris, 1988;Krishnan and Moyer, 1994; UK: Adedeji and Stapleton, 1996;Beattie, Goodacre and Thomson, 2000a;Belgium: Deloof and Verschueren, 1999); in both situations the use of leases allows an increase in overall 'borrowing'. In the UK, Adedeji and Stapleton (1996) estimated that £1 of finance leasing displaced about £0.55 of debt. Most studies have investigated only finance leases, but Beattie, Goodacre and Thomson (2000a) found that £1 of leases (mainly operating leases) displaced approximately £0.23 of debt for UK companies.…”

Section: Leasing and Capital Structurementioning

confidence: 91%

Assessing the potential impact of lease accounting reform: a review of the empirical evidence*

Goodacre

2003

Journal of Property Research

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SummaryAccounting standard-setters have proposed that the right to use assets (including land and buildings) acquired under operating lease contracts should be recognised on the balance sheet of lessee companies. In recent years, several empirical research studies have investigated the potential impact of the proposed changes in accounting for leases. The current paper reviews this work and presents some new evidence, for a property audience.The paper summarises evidence that operating leases represent a major source of finance for many companies generally, and more specifically for companies in the retail sector. Recognition of operating leases on the lessee's balance sheet would have a significant impact on performance measures, especially gearing. If markets are informationally 'efficient' such changes should have little impact. However, research evidence on efficiency with respect to lease accounting information is mixed. What's more, company managers do not believe that the market is efficient so are likely to behave as if the markets are 'inefficient'. Possible reactions include reduced use of leasing, shorter lease contract terms, more break clauses, or increased use of contingent rental agreements. It seems likely that lessors will be under pressure to bear greater risks.

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Section: Leasing and Capital Structurementioning

confidence: 91%

Assessing the potential impact of lease accounting reform: a review of the empirical evidence*

Goodacre

2003

Journal of Property Research

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“…Contrary to economic theory Ang and Peterson (1984) found a complementing relation between debt and leases. This finding was later re-examined by Adedeji and Stapleton (1996) who found evidence in favor of the substitution theory and suggested that the positive relationship reported by Ang and Peterson was induced by the inclusion of a large number of non-leasing companies as well as a lack of controlling for taxable capacity. In the same vein, Yan (2006) and Deloof et al's (2007) results yielded evidence that leases and debt substitute each other empirically rather than acting as complements.…”

Section: Introductionmentioning

confidence: 98%

Financial Constraints and the Decision to Lease - Evidence from German SME

Slotty

2009

SSRN Journal

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The objective of this paper is to test the hypothesis that in particular financially constrained firms lease a higher share of their assets to mitigate problems of asymmetric information. The assumptions are tested under a GMM framework which simultaneously controls for endogeneity problems and firms' fixed effects. We find that the share of total annual lease expenses attributable to either finance or operating leases is considerably higher for financially strained as well as for small and fast-growing firms -those likely to face higher agency-cost premiums on marginal financing. Furthermore, our results confirm the substitution of leasing and debt financing for lessee firms. However, we find no evidence that firms use leasing as an instrument to reduce their tax burdens.Keywords: Leasing; financial constraints; capital structure; asymmetric information JEL Codes: D23, D92, C23 ‡ This research paper is part of a project funded by the German Savings Bank Association. The expressed opinions are strictly those of the author and do not necessarily reflect those of the affiliated organizations.

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“…They referred to this result as the 'leasing puzzle'. Although subsequent analytical work by Lewis and Schallheim (1992) demonstrated the theoretical possibility of complementarity, more recent empirical papers have supported substitutability (Marston andHarris,1988 andAdedeji andStapleton, 1996) although the evidence in Mehran et al, (1997) is mixed.…”

Section: Introductionmentioning

confidence: 99%

“…Marston and Harris (1988) had to use a fairly crude assumption, while Sharpe and Nguyen (1995) and Mehran et al, (1997) used an approximation based on the ratio of lease payments to an estimate of total capital costs in a given year. Other studies, including Ang and Peterson (1984) and Adedeji and Stapleton (1996) are partial analyses incorporating only finance leases.…”

Section: Introductionmentioning

confidence: 99%

Operating leases and the assessment of lease–debt substitutability

Beattie

Goodacre

Thomson

2000

Journal of Banking & Finance

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Operating leases are estimated in the current paper to be approximately thirteen times larger than finance leases, on average. In recognition of this, the paper investigates the degree of substitutability between leasing and non-lease debt using a comprehensive measure of leasing, improving on the partial measures used in prior research. Operating lease liabilities are estimated using the 'constructive capitalisation' approach suggested by Imhoff et al. (1991), modified to incorporate company-specific and UK-relevant assumptions. The results imply that leasing and debt are partial substitutes, with £1 of leasing displacing approximately £0.23 of non-lease debt, on average, consistent with the argument that lessors bear some risks which are not inherent in debt contracts. These findings suggest that substitution effects are not uniform across lease types. JEL classification: G32

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Leases, debt and taxable capacity

Cited by 34 publications

References 15 publications

Assessing the potential impact of lease accounting reform: a review of the empirical evidence*

Assessing the potential impact of lease accounting reform: a review of the empirical evidence*

Financial Constraints and the Decision to Lease - Evidence from German SME

Operating leases and the assessment of lease–debt substitutability

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