Location and Lease Intensity

46 Pages Posted: 30 Nov 2017

See all articles by Erik Devos

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Shofiqur Rahman

New Mexico State University

Date Written: June 15, 2014


U.S. firms lease assets extensively. We find that, during 1980–2011, the average U.S. firm has a lease intensity of about 40%. Or, the average firm has present and future (up to five years) rent commitments equal to 16.6% of their total assets. We investigate whether agency costs between the lessor and the lessee affect the lease intensity of firms. To do so, we examine the impact of firms' location on the use of operating leases. The main idea of our paper is that, because obtaining information and monitoring is costly for potential lessors, especially when a lessee is relatively far away from financial centers, rural firms are less likely to use operating leases. Consistent with this hypothesis, we show that rural firms tend to have lower lease intensities than similar urban and small city firms. In addition, we find that firms with higher levels of debt capacity lease less and firms that face more financial constraint lease more. Our findings are robust to industry and lease maturity controls and consistent with the existence of an agency problem associated with leasing.

Keywords: Geographic location, Operating leases, Debt financing

JEL Classification: G30, G32

Suggested Citation

Devos, Erik and Rahman, Shofiqur, Location and Lease Intensity (June 15, 2014). Journal of Corporate Finance, Vol. 29, 2014. Available at SSRN: https://ssrn.com/abstract=3077616 or http://dx.doi.org/10.2139/ssrn.3077616

Erik Devos (Contact Author)

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915 747 7770 (Phone)

HOME PAGE: http://utminers/utep.edu/hdevos

Shofiqur Rahman

New Mexico State University ( email )

College of Business
Las Cruces, NM 88003
United States

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