How Does Leasing Affect Leverage

68 Pages Posted: 19 Feb 2021 Last revised: 1 Dec 2022

See all articles by Tim Liu

Tim Liu

University of Utah - David Eccles School of Business

Date Written: November 28, 2022


Studying leasing's impact on capital structure has proven challenging in the literature, as corporate leasing policy is 1) difficult to measure and 2) endogenous. I address these empirical challenges by 1) developing a novel measure of new lease contracting, and 2) exploiting a Moody's accounting policy change that induced an increase in leasing. Concurrent with this uptick in leasing, firms reduced secured debt usage. Leasing preserves secured debt capacity across the sample of firms, but only high investment opportunity firms convert their secured debt capacity into secured borrowing. Firms with low investment opportunities substitute out secured debt when leases increase.

Keywords: Leasing, Secured Debt, Capital Structure, Credit Ratings

JEL Classification: G3, G32, G24

Suggested Citation

Liu, Tim, How Does Leasing Affect Leverage (November 28, 2022). Available at SSRN: or

Tim Liu (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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