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The purpose of this paper is to investigate the determinants of leasing decisions for a sample of China’s non-financial small and medium-sized enterprises (SMEs).

Pooled ordinary least squares and Tobit models are used to analyze five years of data (2009-2013) on the sample units, to find the determinants of leasing decisions after controlling for industry. In order to assess the robust of the results, the authors further apply instrumental variables methods.

The results suggest that CEO ownership, tax rate, financial distress potential, and firm size are positively related to the operating lease share, whereas debt ratio, profitability, and tangibility are negatively linked to the operating lease share. In contrast, capital lease share increases with debt ratio, profitability, firm size, and strong corporate governance; it decreases with CEO ownership and financial distress potential.

Using a small sample might not be enough capture industry effects. Future research may gain more insights using sufficient sample and considering the types of leases as well as leased assets.

This study offers evidences to the policy-makers who may adopt the practices to promote the development of leasing market. Furthermore, these results provide important implications to lessors in making operating strategy decisions and to potential lessees in making financing decisions.

To the authors’ limited knowledge, this is the first study on leasing relies on publicly traded Chinese SMEs. The results of this study enrich the literature on the determinants of leasing in several ways.

The US restaurant industry and the food‐service industry have undergone tremendous changes during the last decade owing to demographic changes, changes in the family structure, the increase in the number of working women and senior citizens, advances in technology (inventory management, customer order processing, accounting/financial systems, etc.), availability of financing, changes in the real estate industry (location, negotiation with malls, relationships with developers, etc.), intense competition, the growth in the types and number of marketing channels (including the Internet), increasing number of drive‐through customers, employee training requirements, changes in labor laws, the rate of implementation of technology, changes in food sourcing/purchasing, the growth of the franchising business model, and increasing regulation. These factors have combined to shape the strategic, legal, economic and operational considerations that executives and decision makers should thoroughly understand. This article discusses the issues and challenges facing one company in these two industries and how management and banks have reacted, and then explains strategies for the future. Also discussed are relevant considerations for financial sponsors and companies. Most data and analysis are as of April 2000.

The purpose of this paper is to examine the relationship between a firm's propensity to lease and several firm characteristics: tax position, financial constraint, ownership structure, growth, and size.

Controlling for industry, total lease share, operating and capital lease share ratios, obtained using an income statement approach, are regressed on a trichotomous tax variable, a dichotomous cash flow coverage ratio variable, debt over fixed assets, ownership concentration, market to book value of shares and the natural log of sales.

Total lease share increases with leverage, tax position and growth; it decreases with cash flow coverage, ownership concentration and firm size. Results for operating lease share are similar to those for total lease share. In contrast, capital lease share decreases with tax position and increases with ownership concentration and size.

The results suggest that leasing offers added debt capacity and increases in financially constrained firms. Firms that pay high taxes seem to place more value on the constant stream of tax deductions from the rental payments than on deductions from decreasing interest costs and amortization. Finally, highly concentrated Canadian firms may use less leasing because they are more family‐controlled.

The literature offers mixed reasons for firms' decisions to lease or purchase assets. This study provides further evidence in a rich setting. In 2001, the Canadian tax authorities changed the tax treatment of leases, thus providing an opportunity to validate prior results on the impact of taxes on leasing. By including two different measures of financial constraint, this study disentangles the substitution and the added debt capacity hypotheses.

This exercise exposes students to complex lease transactions, requiring research in the FASB Accounting Standards Codification, archived standards, and future standards (exposure drafts (ED)).

Case study/exercise/assignment.

Students analyze how a retail establishment examines lease transactions to ensure its practices are in line with its mission. Students gain experience researching archived, current, and future standards. Student feedback suggests that students feel the exercise is valuable because it reinforces what they learned in earlier courses and it requires them to understand all aspects related to capital and operating leases. Furthermore, direct assessment data based on grading rubrics indicates that most students meet instructor expectations and indirect assessment data based on student perceptions indicates students are meeting the exercise learning outcomes.

This learning exercise fosters critical thinking skills; emulating professional practice issues and enhancing written and communication skills. It reinforces graduate students’ undergraduate learning related to leases.

The purpose of this paper is to investigate the impacts of social capital on the rate at which agricultural land is rented between landowners and tenants using data from the state of Kansas.

A survey of tenants provides data on the rental rate of farmland as well as characteristics of the lease, the land, and the landowner.

Results support the hypothesis of a negative impact on rental rates from longer-term leasing relationships. The model estimates a 10.0 percent discount relative to market rates when the leasing relationship increases from 11 to 22 years. At the sample average of $64 per acre, this is a $10 per acre discount.

Increased levels of social capital, as measured by the length of the leasing relationship between landowner and tenant, reduce the rental rate. A 10 percent increase in the number of years a parcel of land is leased to the same tenant will decrease the annual rental rate by 1 percent.

Research adds to the understanding of informal relationships underlying farmland leases. A large number of farmland tracts may turnover in the coming years. This turnover may affect the rental rates for tenants who have had long-term leasing relationships over time.

New lease accounting rules are proposed that will fundamentally change the way leases are accounted for and reported in financial statements. This paper seeks to provide information on the proposed new rules and to illustrate their impact on financial statements and financial ratios using a single restaurant company.

The case of a single restaurant company, CEC International, is used to illustrate the potential impact of the new rules. Additional examples are used to illustrate the impact on financial policies. Financial statements were adjusted and various financial ratios such as interest coverage, leverage and profitability ratios were computed before and after capitalization.

The results show that financial statements presented will change dramatically when lease assets and liabilities are added to the balance‐sheet. The expense recognition pattern will change significantly and negatively impact performance measures such as interest coverage and capital ratios but improve cash flow measures such as EBIT and EBITDA.

Limitations of this study include the assumptions used to capitalize leases such as interest rate, life of leases, no new leases, and exclusion of contingent rentals.

All restaurant companies and managers must assess the costs and benefits of complying with the proposed new rules and start analyzing and evaluating their impact on existing debt agreements, executive compensation plans, and the lease versus buy decision.

This paper serves to inform restaurant managers about the potential implications of the new rules, so managers can prepare, plan and formulate strategies to mitigate their impact.

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 investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.

The difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.

The authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.

Since the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.

The authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.

The authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

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.

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.