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Operating leases and the assessment of lease-debt substitutability

Beattie, Vivien and Goodacre, Alan and Thomson, Sarah Jane (2000) Operating leases and the assessment of lease-debt substitutability. Journal of Banking and Finance, 24 (3). pp. 427-470. ISSN 0378-4266

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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 £1 of leasing displacing approximately £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: Journal Article
Journal or Publication Title: Journal of Banking and Finance
Uncontrolled Keywords: Operating leases ; Capital structure ; Lease–debt substitutability
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 66455
Deposited By: ep_importer_pure
Deposited On: 17 Sep 2013 09:11
Refereed?: Yes
Published?: Published
Last Modified: 13 Jun 2018 04:13
Identification Number:

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