Operating leases and the assessment of lease-debt substitutability

Beattie, V., Goodacre, A. and Thomson, S. (2000) Operating leases and the assessment of lease-debt substitutability. Journal of Banking and Finance, 24(3), pp. 427-470. (doi: 10.1016/S0378-4266(99)00045-X)

Abstract

Operating leases are estimated in the current paper to be approximately thirteen times larger than finance leases, on average. In recognition of this, the paper investigates the degree of substitutability between leasing and non-lease debt using a comprehensive measure of leasing, improving on the partial measures used in prior research. Operating lease liabilities are estimated using the 'constructive capitalisation' approach suggested by Imhoff, Lipe and Wright (1991, Accounting Horizons 5, pp. 51-63), modified to incorporate company-specific and UK-relevant assumptions. The results imply that leasing and debt are partial substitutes, with [UK pound]1 of leasing displacing approximately [UK pound]0.23 of non-lease debt, on average, consistent with the argument that lessors bear some risks which are not inherent in debt contracts. These findings suggest that substitution effects are not uniform across lease types.

• Item Type: Articles
• Additional Information: Final version as accepted by the Journal of Banking and Finance supplied by the author.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Beattie, Prof Vivien
• Authors: Beattie, V., Goodacre, A., and Thomson, S.
• Subjects: H Social Sciences > HG Finance
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of Banking and Finance
• Publisher: Elsevier Ltd.
• ISSN: 0378-4266
• ISSN (Online): 1872-6372
• Copyright Holders: © 2000 Elsevier Science B.V.
• First Published: First published in Journal of Banking and Finance 24(3)427-470
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher.