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Financial constraint and the choice between leasing and debt

Author

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  • Lin, Jane-Raung
  • Wang, Chia-Jane
  • Chou, De-Wei
  • Chueh, Fei-Chun

Abstract

Earlier studies suggest that companies use debt and leases interchangeably as the alternative external financing choice. We provide evidence that firms are not indifferent between debt and leases and the lease versus debt decision depends on the extent to which firms are financially constrained. For the most constrained firms leasing (debt) is negatively (positively) related to internal funds and for the less constrained firms the results are just the opposite. Our findings support the hypothesis that constrained firms tend to choose leasing over debt financing. The results are robust to various estimation methods that control for endogeneity and panel dynamics.

Suggested Citation

  • Lin, Jane-Raung & Wang, Chia-Jane & Chou, De-Wei & Chueh, Fei-Chun, 2013. "Financial constraint and the choice between leasing and debt," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 171-182.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:171-182
    DOI: 10.1016/j.iref.2012.09.012
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    7. Zoey Wong & Afei Chen & Farhad Taghizadeh-Hesary & Rongrong Li & Qunxi Kong, 2023. "Financing Constraints and Firm’s Productivity Under the COVID-19 Epidemic Shock: Evidence of A-Shared Chinese Companies," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(1), pages 167-195, February.
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    10. Jaszczuk Joanna & Białek-Jaworska Anna & Opolski Krzysztof & Sylwestrzak Marek & Trzpioła Katarzyna, 2018. "Leasing Puzzle in Polish Small Firms Listed on the Alternative Market," Central European Economic Journal, Sciendo, vol. 5(52), pages 25-39, January.
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