IDEAS home Printed from https://ideas.repec.org/a/eme/ijmfpp/v7y2011i3p259-283.html
   My bibliography  Save this article

Determinants of leasing propensity in Canadian listed companies

Author

Listed:
  • Antonello Callimaci
  • Anne Fortin
  • Suzanne Landry

Abstract

Purpose - The purpose of this paper is to examine the relationship between a firm's propensity to lease and several firm characteristics: tax position, financial constraint, ownership structure, growth, and size. Design/methodology/approach - Controlling for industry, total lease share, operating and capital lease share ratios, obtained using an income statement approach, are regressed on a trichotomous tax variable, a dichotomous cash flow coverage ratio variable, debt over fixed assets, ownership concentration, market to book value of shares and the natural log of sales. Findings - Total lease share increases with leverage, tax position and growth; it decreases with cash flow coverage, ownership concentration and firm size. Results for operating lease share are similar to those for total lease share. In contrast, capital lease share decreases with tax position and increases with ownership concentration and size. Research limitations/implications - The results suggest that leasing offers added debt capacity and increases in financially constrained firms. Firms that pay high taxes seem to place more value on the constant stream of tax deductions from the rental payments than on deductions from decreasing interest costs and amortization. Finally, highly concentrated Canadian firms may use less leasing because they are more family‐controlled. Originality/value - The literature offers mixed reasons for firms' decisions to lease or purchase assets. This study provides further evidence in a rich setting. In 2001, the Canadian tax authorities changed the tax treatment of leases, thus providing an opportunity to validate prior results on the impact of taxes on leasing. By including two different measures of financial constraint, this study disentangles the substitution and the added debt capacity hypotheses.

Suggested Citation

  • Antonello Callimaci & Anne Fortin & Suzanne Landry, 2011. "Determinants of leasing propensity in Canadian listed companies," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 7(3), pages 259-283, June.
    • Handle: RePEc:eme:ijmfpp:v:7:y:2011:i:3:p:259-283
    DOI: 10.1108/17439131111144469
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/17439131111144469/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/17439131111144469/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/17439131111144469?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Barclay, Michael J & Smith, Clifford W, Jr, 1995. "The Priority Structure of Corporate Liabilities," Journal of Finance, American Finance Association, vol. 50(3), pages 899-917, July.
    2. Sharpe, Steven A. & Nguyen, Hien H., 1995. "Capital market imperfections and the incentive to lease," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 271-294.
    3. M.Ameziane Lasfer & Mario Levis, 1998. "The Determinants of the Leasing Decision of Small and Large Companies," European Financial Management, European Financial Management Association, vol. 4(2), pages 159-184, July.
    4. Andrea L. Eisfeldt & Adriano A. Rampini, 2009. "Leasing, Ability to Repossess, and Debt Capacity," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1621-1657, April.
    5. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
    6. Hamid Mehran & Robert A. Taggart & David Yermack, 1999. "CEO Ownership, Leasing, and Debt Financing," Financial Management, Financial Management Association, vol. 28(2), Summer.
    7. Ang, James & Peterson, Pamela P, 1984. "The Leasing Puzzle," Journal of Finance, American Finance Association, vol. 39(4), pages 1055-1065, September.
    8. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    9. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    11. Graham, John R., 1996. "Proxies for the corporate marginal tax rate," Journal of Financial Economics, Elsevier, vol. 42(2), pages 187-221, October.
    12. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    13. Lewis, Craig M. & Schallheim, James S., 1992. "Are Debt and Leases Substitutes?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(4), pages 497-511, December.
    14. Stulz, ReneM. & Johnson, Herb, 1985. "An analysis of secured debt," Journal of Financial Economics, Elsevier, vol. 14(4), pages 501-521, December.
    15. Mike Adams & Philip Hardwick, 1998. "Determinants of the leasing decision in United Kingdom listed companies," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 487-494.
    16. Smith, Clifford W, Jr & Wakeman, L MacDonald, 1985. "Determinants of Corporate Leasing Policy," Journal of Finance, American Finance Association, vol. 40(3), pages 895-908, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anna Białek-Jaworska & Aneta Dzik-Walczak & Natalia Nehrebecka, 2015. "Kiedy firmy sięgają po leasing?," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 113-144.
    2. João Miguel Oliveira Cotrim & Nunes Francisco, 2017. "Sharing Economy: The Establishment of Organizational Identity Overtime, Considering Identify Claims and Legitimacy Granting," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 3, September.
    3. Landry, Suzanne & Fortin, Anne & Callimaci, Antonello, 2013. "Family firms and the lease decision," Journal of Family Business Strategy, Elsevier, vol. 4(3), pages 176-187.
    4. Natalia Nehrebecka & Aneta Dzik-Walczak, 2016. "Publication selection bias in the sources of financing the enterprises research? A Meta-Regression Analysis," Working Papers 2016-02, Faculty of Economic Sciences, University of Warsaw.
    5. Munir, Qaiser & Kok, Sook Ching & Teplova, Tamara & Li, Tongxia, 2017. "Powerful CEOs, debt financing, and leasing in Chinese SMEs: Evidence from threshold model," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 487-503.
    6. 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.
    7. Anna Białek-Jaworska & Natalia Nehrebecka, 2016. "Determinants of Polish Enterprises' Propensity to Lease," Working Papers 2016-07, Faculty of Economic Sciences, University of Warsaw.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Landry, Suzanne & Fortin, Anne & Callimaci, Antonello, 2013. "Family firms and the lease decision," Journal of Family Business Strategy, Elsevier, vol. 4(3), pages 176-187.
    2. Beattie, Vivien & Goodacre, Alan & Thomson, Sarah, 2000. "Operating leases and the assessment of lease-debt substitutability," Journal of Banking & Finance, Elsevier, vol. 24(3), pages 427-470, March.
    3. Elizabeth Devos & Erik Devos & He Li & Desmond Tsang, 2022. "Operating Lease as Alternative Financing for REITs: a Viable Strategy or a Sign of Trouble?," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 153-180, August.
    4. Stefania Cosci & Roberto Guida & Valentina Meliciani, 2015. "Leasing Decisions and Credit Constraints: Empirical Analysis on a Sample of Italian Firms," European Financial Management, European Financial Management Association, vol. 21(2), pages 377-398, March.
    5. Anna Białek-Jaworska & Natalia Nehrebecka, 2016. "Determinants of Polish Enterprises' Propensity to Lease," Working Papers 2016-07, Faculty of Economic Sciences, University of Warsaw.
    6. 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.
    7. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    8. Nancy Huyghebaert & Linda M. Van de Gucht, 2007. "The Determinants of Financial Structure: New Insights from Business Start‐ups," European Financial Management, European Financial Management Association, vol. 13(1), pages 101-133, January.
    9. João Pinto & Luís K. Pacheco, 2014. "The Economics Of Structured Leasing," Working Papers de Economia (Economics Working Papers) 04, Católica Porto Business School, Universidade Católica Portuguesa.
    10. Munir, Qaiser & Kok, Sook Ching & Teplova, Tamara & Li, Tongxia, 2017. "Powerful CEOs, debt financing, and leasing in Chinese SMEs: Evidence from threshold model," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 487-503.
    11. Carmen Cotei & Joseph Farhat, 2017. "The Leasing Decisions of Startup Firms," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-30, December.
    12. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
    13. Hartmann-Wendels, Thomas & Winter, Jens, 2006. "Leasing und asymmetrische Informationsverteilung," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 4(1), pages 15-27.
    14. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.
    15. Parrino, Robert & Weisbach, Michael S., 1999. "Measuring investment distortions arising from stockholder-bondholder conflicts," Journal of Financial Economics, Elsevier, vol. 53(1), pages 3-42, July.
    16. Florian Heider & Alexander Ljungqvist, 2012. "As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from Exogenous State Tax Changes," NBER Working Papers 18263, National Bureau of Economic Research, Inc.
    17. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    18. Bartholdy, Jan & Mateus, Cesário, 2011. "Debt and taxes for private firms," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 177-189, June.
    19. Ayub Mehar, 2005. "Impacts of equity financing on liquidity position of a firm," Applied Financial Economics, Taylor & Francis Journals, vol. 15(6), pages 425-438.
    20. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijmfpp:v:7:y:2011:i:3:p:259-283. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.