Leasing versus purchasing: Direct evidence on a corporation's motivations for leasing and consequences of leasing

John R. Ezzell, Premal P. Vora

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

This paper provides new evidence on the possible sources of lessee equity value changes when leasing contracts are announced. We show that lessee common equity value increases significantly in sale and leasebacks and insignificantly in direct leases. We find support, in sale and leasebacks, for the tax-savings hypothesis and for the savings in bankruptcy costs hypothesis. We also find support for the hypothesis that leasing reduces the external financing costs related to adverse selection that arise in markets with asymmetric information. Finally, we show that lessees gain less in direct leases when they lease assets with salvage values that are sensitive to use.

Original languageEnglish (US)
Pages (from-to)33-47
Number of pages15
JournalQuarterly Review of Economics and Finance
Volume41
Issue number1
DOIs
StatePublished - Mar 1 2001

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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