| Theoretically, leasing and debt are thought to be substitutes. This assumes that a lease payment, which is a fixed obligation like a loan, displaces debt and reduces debt capacity, i.e., if firms have optimal debt to equity ratios, then, to the extent that it represents "off-balance-sheet" financing, leasing reduces debt capacity. Ang and Peterson-the seminal work in the literature-fit Tobit models with 1976 to 1981 data from 600 firms in which a leasing to book value of equity ratio is the dependent variable and a debt to book value of equity ratio and other variables are the explanatory variables. Contrary to expectations, their model results indicate that leasing and debt are complementary activities. This study follows the Ang and Peterson... |
