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Lease Valuation When Taxable Earnings Are a Scarce Resource

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  • Franks, Julian R
  • Hodges, Stewart D

Abstract

The authors examine leasing as a tax-arbitrage instrument. The theoretical model explains these positive NPVs in terms of a ma rket price for a scarce resource that they identify as scarce taxable earnings. Using these prices, the model permits a lessor to determin e whether the profitability of a proposed set of lease contracts can be improved by writing a different set of contracts that makes better use of the lessor's taxable earnings. Subsequently, the authors disc uss why the leasing market may be characterized by clientele, and, us ing two different samples of leases, they test whether the leasing ma rket is segmented and efficient. Copyright 1987 by American Finance Association.

Suggested Citation

  • Franks, Julian R & Hodges, Stewart D, 1987. "Lease Valuation When Taxable Earnings Are a Scarce Resource," Journal of Finance, American Finance Association, vol. 42(4), pages 987-1005, September.
    • Handle: RePEc:bla:jfinan:v:42:y:1987:i:4:p:987-1005
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    Cited by:

    1. Derek K.Y. Chau & Michael Firth & Bin Srinidhi, 2006. "Leases with Purchase Options and Double Moral Hazard," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1390-1401, November.
    2. Henry Schneider, 2010. "Moral Hazard in Leasing Contracts: Evidence from the New York City Taxi Industry," Journal of Law and Economics, University of Chicago Press, vol. 53(4), pages 783-805.
    3. Gerhard Satzger, 1999. "Leasing, Steuern und Intermediäre," Schmalenbach Journal of Business Research, Springer, vol. 51(4), pages 325-349, April.
    4. Justin P. Johnson & Henry S. Schneider & Michael Waldman, 2014. "The Role and Growth of New-Car Leasing: Theory and Evidence," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 665-698.
    5. Justin P. Johnson & Michael Waldman, 2010. "Leasing, Lemons, and Moral Hazard," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 307-328, May.

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