Abstract

http://ssrn.com/abstract=811588
 
 

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Leasing, Ability to Repossess, and Debt Capacity


Andrea L. Eisfeldt


UCLA Anderson School of Management

Adriano A. Rampini


Duke University

2007

AFA 2007 Chicago Meetings Paper
US Census Bureau Center for Economic Studies Paper No. CES-WP-07-19
EFA 2006 Zurich Meetings

Abstract:     
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 consistent with the explanation of leasing by practitioners, namely that leasing "preserves capital," which the academic literature considers a fallacy.

Number of Pages in PDF File: 46

Keywords: Leasing, secured debt, collateral, repossession, debt capacity, capital

JEL Classification: D23, D92, E22, G31, G32, G33

working papers series


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Date posted: October 3, 2005  

Suggested Citation

Eisfeldt, Andrea L. and Rampini, Adriano A., Leasing, Ability to Repossess, and Debt Capacity (2007). AFA 2007 Chicago Meetings Paper; US Census Bureau Center for Economic Studies Paper No. CES-WP-07-19; EFA 2006 Zurich Meetings. Available at SSRN: http://ssrn.com/abstract=811588 or http://dx.doi.org/10.2139/ssrn.811588

Contact Information

Andrea L. Eisfeldt
UCLA Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
Adriano A. Rampini (Contact Author)
Duke University ( email )
100 Fuqua Drive
Durham, NC 27708
United States
+1 919 660-7797 (Phone)
+1 919 660-8038 (Fax)
HOME PAGE: http://faculty.fuqua.duke.edu/~rampini/
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