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The Economics Of Structured Leasing

Author

Listed:
  • João Pinto

    (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)

  • Luís K. Pacheco

    (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)

Abstract

A structured leasing is a new and highly flexible transaction that develops synergies between funding policy, risk management of the underlying assets, and tax benefits. It is used in particular transactions involving complex and large-scale assets, such as airplanes, ships, industrial plant and equipment, and large real estate projects. As in other tax-based techniques, the implementation of a structured leasing transaction, either a leveraged lease or a synthetic lease, is more significant when the value of the asset is large and allows for a potentially greater tax benefits’ appropriation. Structured leasing creates value by increasing liquidity and funding, reducing the funding costs, allowing sponsors to attain greater leverage and to increase tax shields, improving lessees’ risk management, and allowing lessees to maintain financial flexibility, by improving or maintaining financial ratios. Although all of the above-mentioned economic advantages, structured leasing also has problems. The most commonly referred problems of structured leases are complexity, offbalance sheet treatment, higher transaction costs, and wealth expropriation. Besides describing the economic motivations and problems of structured leasing, this paper provides details on the characteristics of structured leasing activity and reviews the most influential papers, summarizes their results, and associates them with the existing empirical evidence.

Suggested Citation

  • 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.
    • Handle: RePEc:cap:wpaper:042014
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    References listed on IDEAS

    as
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    Cited by:

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    2. Lukman Hanif Arbi, 2021. "A Contract Theory Approach to Islamic Financial Securities with an Application to Diminishing Mush?rakah," JRFM, MDPI, vol. 14(1), pages 1-12, January.

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    More about this item

    Keywords

    financing; leasing; structured leases; leveraged leases; synthetic leases;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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