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The purpose of this paper is to survey the lease vs buy coverage in leading managerial finance textbooks and to clarify the impact of tax rates and borrowing rates.

The survey uses “plain vanilla” lease vs buy scenarios to critique and clarify particular issues in the textbook presentations.

The survey finds: a lone text shows that there can be a gain from leasing if the lessee’s tax rate is higher than the lessor’s, which challenges the “conventional wisdom” maintained in all the other texts; some textbook examples attribute an overall benefit to leasing to the tax rate difference, but the benefit is actually due to a borrowing rate difference, and borrowing rate differences may be a more important source of leasing benefits than tax rate differences.

The survey provides insights that are not well known and should be useful to instructors and practitioners.

Examines the lease vs. buy decision for investments in technology. Addresses pivotal investment decision issues such as varying the length of the lease, the useful life of the equipment, and alignment with the company's overall financial strategy. The scenario is for a real financial services firm that has been disguised for confidentiality reasons. Presents an investment decision: should a company buy or lease technology with a relatively short useful life? The new controller at AMG, a Fortune 500 financial services firm, has been tasked with determining how to finance the acquisition of 7,542 new PCs to be rolled out over the next 12 months. This is a $6.7 million investment decision and the rollout schedule adds significant complexity to the solution. The controller must choose between buying or leasing the computers over 24- or 36-month time frames. Provides a framework for analyzing similar investment decisions. The key learning point is that leasing information technology can be cheaper than buying. This is contradictory to a car lease, which may be familiar from everyday experience. A new car has a potentially long useful life and can retain significant value after several years, hence, intuition is that buying should always be cheaper than leasing. Shows that this is not the case for information technology. Teaches the correct application of the mid-quarter convention within MACRS depreciation for technology, and the implications of operating vs. capital leases and off-balance-sheet financing. In the process, introduces the four tests for a capital lease. Finally, shows how creative analysis techniques can be used to simplify complex decisions. These techniques aid in arriving at a conclusion faster and with less effort.

To illustrate the fundamentals of lease vs. buy decisions in technology and how they differ from the typical capital equipment lease vs. buy decision. Topics covered include MACRS depreciation and off-balance-sheet financing for a complex leasing scenario staggered in time across multiple business units.

The purpose of this paper is to examine the influence of manager ability on a firm’s choice of lease classification and the decision to capitalize vs lease firm-specific assets.

The authors use regression analysis to examine the association between manager ability, lease classification and asset specificity.

Using 31,110 firm-year observations from 1998 to 2013, the authors find a significant positive relationship between manager ability and the decision to classify leases as operating. The authors also find that high-ability managers are more likely to capitalize, rather than lease, specialized firm-specific assets.

The results imply that manager ability influences the choice of lease classification, which provides some support for the recent changes to lease accounting in Accounting Standard Update (ASU) 2016-02. The authors also show that asset specificity may serve as a mitigating factor in high-ability managers’ preference for operating leases, which implies that high-ability managers’ concerns with operational efficiency outweigh the benefits of off-balance sheet financing in their purchasing decisions if the asset in question is firm-specific.

The findings may be useful to boards of directors, investors and accounting academics concerned with the role that managerial ability plays in operational decision making and financial reporting.

The results imply that high-ability managers prefer off-balance sheet financing, which is unlikely to limit their access to external capital, but that this relationship is mitigated if the firm requires highly specialized assets.

The purpose of this paper is to review empirical research on the determinants of leasing.

The paper reviews previous literature that has focused on studying the determinants of leasing decisions. It also discusses the determinants of the lease‐buy decision and the determinants of the choice between finance leases and operating leases.

Previous empirical studies show that there is no consensus as to whether debt and leases are complements or substitutes. However, there are some factors that affect the choice between leases and debt, such as size, taxes, nature of assets, financial constraints and management compensation. Leases tend to be more prevalent in some industries (such as air transport, retailing and services and utilities) than in others, and companies tend to lease assets that are less specific, of general usage and more liquid. Previous studies also show that higher leverage companies tend to use leases rather than other forms of financing.

The paper only addresses the determinants of leasing. Previous studies about leases address other areas such as the lease accounting standards and the economic consequences and valuation of leases, which are not discussed in this paper.

The paper presents an exhaustive review of previous literature on the determinants of leasing. Evidence from research on this topic is likely to be helpful in capital market investment decisions, accounting standard setting and decisions on corporate financial disclosure.

This paper aims to analyse the corporate rent-vs-buy decision on real estate through the trade-off theory and default option in the framework of a corporation that aims to optimise its capital structure.

The methodological core of this paper comprises the trade-off theory that approaches the optimal capital structure by counterbalancing debt tax savings with bankruptcy costs. Impacts on the default option and the default barrier are made explicit. The paper also explores the practical applicability of the renting scenarios in the European context by examining the regimes of real estate investment trusts in different countries from the demand-side of commercial renting.

Analytical relationships with tax savings, bankruptcy costs, default option and default barrier are identified for the renting-vs-buying real estate decisions.

The theoretical model assumes simplifications, such as constant debt, to make it operational. The paper centres exclusively on the trade-off capital structure theory.

This paper is an analysis of corporate real estate decisions together with capital structure. Applications are not only quantitative but also conceptual and strategic.

Identifying the main variables that govern the impact of corporate real estate decisions on capital structure and interweaving different approaches generates a conceptual framework that enlightens strategic thinking in this field.

As the move from the business incubator loomed, Abdul Khan had to decide where his business should relocate to. ACEES Group LLC, a small consulting firm, had grown from three friends working out of Abdul Khan’s house to a 20-person firm generating more than a million dollars in revenue within five years. This growth had necessitated the need for a larger and more prominent place. Although Abdul knew he did not want to renew the lease at the incubator, and he did not want to move his business too far from its current location, but the decision he had to make was whether ACEES Group should lease a commercial place or buy its own property. He was particularly torn because the real estate prices had fallen considerably, and were now on the mend and interest rates were still low.

The primary source of materials in the case was an interview with the owner (pseudo name: Abdul Khan). The owner wishes to remain anonymous. The financial statements of the firm produced in the case have been modified by a fixed factor so as to disguise the actual numbers but not materially alter the information in any fashion. Other secondary sources of materials include information about the business incubator program, the MBE certification and its benefits through the State of Florida, real estate and lease rates in Central Florida and other economic information.

This case is primarily intended for undergraduate students taking a course in entrepreneurship, real estate investments or financial management, with emphasis on real estate valuation, cash flow forecasting and/or valuation of business. Students should be familiar with time value of money concepts, understand the concept of NPV and IRR, and preferably be comfortable in the use of Excel. This instructor manual provides all calculations of space needs analysis, and discounted cash flow analysis for lease vs buy analysis. A few suggestions to discuss qualitative aspects of this decision making are also included.

This research study explores the growing phenomenon of consumption without ownership by addressing individuals’ motivations for leasing, rather than financing, products. A two‐phase study was conducted in the retail automotive industry in order to ascertain motives for consumer leasing. It was found that while all hypothesized motives were predictors of the lease/finance decision (including desire for gratification and desire for social approval), two variables – desire for variety and desire for simplified maintenance – emerged as the best predictors of whether an individual chooses to lease or finance his/her motor vehicle. Implications for marketers and academicians are discussed.

The aim of this paper is to demonstrate how a grounded theory method applied to a case study within a particular industrial context can be used to derive a substantive model of the practice of capital budgeting and contribute to an understanding of contextual elements that affect investment decisions. This study aims to examine how the investment decision to acquire aircraft, strategic core assets, is made by small players within an industry that is small by world standards, Australian regional aviation.

This research adopts a grounded theory approach to the case study. Primary data were collected using questionnaires, semi‐structured and open‐ended interviews. Secondary data comprised pro‐forma aircraft lease contracts and information from a law firm. Consistent with grounded theory, qualitative research mining software (Leximancer) was used to facilitate initial analyses of data and understanding of decision factors and their relationships. The model was derived, refined and confirmed using data from follow‐up unstructured interviews.

This research within a specific industrial context finds that a substantive model derived through a grounded theory approach provides an understanding of the richness of the investment scenario and the decision factors considered in the capital budgeting decision. Reflection on such narrow industrial findings in terms of existing theories provides insight into the reasons for the gap between practice and theory.

This research is original in that it employs a grounded theory approach, which has received little attention within prior literature, to derive a substantive model based on industrial practice of managers who are instrumental in and responsible for a capital budgeting decision. Such an alternative approach to modelling is of value in bridging the gap between practice and theory. Substantive models produced for different industries or contexts can be compared and similarities refined into a theory that is grounded in practice. Dissimilarities may provide valuable insights into variables and processes that are unique to particular contexts.

Previous research in lease finance and evaluation has given little consideration to environmental factors. The purpose of this paper is to add to the literature by analysing how leasing provides a more attractive option than selling and extended producer responsibility (EPR) in helping to close product life‐cycle loops, extend the useful life of products, and increase environmental benefits.

This paper revisits the accounting concepts of asset depreciation, residual value and cost of leasing and proposes methods to incorporate these concepts into the “closed loop” lease and service mode for product life‐cycle management.

For business, the “closed loop” lease and service mode changes asset values through the extension of the asset's useful life and in particular, the increase of the residual value of the product (i.e. recoverable value to the producer/lessor). Such changes reduce the cost of leasing to the advantage of both lessor and lessee. However, the argument about a “win‐win” monetary and environmental outcome being associated with leasing presents several challenges for current accounting standards in terms of recognition of lease and lease revenue, recognition of intangible assets and internalisation of environmental costs and impacts associated with the leasing process.

To date, accounting and finance literature seems to focus exclusively on the economic aspects of leasing strategies. This paper uses a different lens to make a call for a rethink about leasing with environmental considerations. It is expected that the findings and suggestions in this study will facilitate the adoption and diffusion of the “closed loop” lease and service mode in the business world for the benefit of the environment in the future.

The case centers on Shilling & Smith's acquisition of Xteria Inc. and the resulting need to quickly scale the company's IT infrastructure to accommodate the acquisition. The case is based on a real leasing problem faced by a major retail firm in the Chicago area when it purchased a small credit card processing firm and scaled the operations to handle the retail firm's credit card transactions. The CIO of Shilling & Smith needs to determine which lease option is the best means of providing the technical infrastructure needed to support the firm after the acquisition of Xteria. Several issues will drive this decision, including the value and useful life of the equipment, as well as the strategic context of the firm. This case examines how to evaluate different lease options when acquiring data center information technology infrastructure. Specifically, the case addresses software vs. hardware leasing, different lease terms, and choosing between different lease structures depending on the strategy and needs of a company. This case enables students to understand the different types of technology leases and in which situations these leases would be employed.

The Shilling & Smith case examines how to evaluate different lease options when acquiring data center information technology infrastructure. Specifically, students learn software vs. hardware leasing, different lease terms, and how to choose between different lease structures depending on the strategy and needs of the company. A secondary objective of the case is to teach students the important components and relative costs of information technology infrastructure.