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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. ISSN 0378-4266 (doi:10.1016/S0378-4266(99)00045-X)

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Publisher's URL: http://dx.doi.org/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:Article
Additional Information:Final version as accepted by the Journal of Banking and Finance supplied by the author.
Status:Published
Refereed:Yes
Glasgow Author(s):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.

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