An examination of tax and agency costs rationales for long-term leasing

The focus of this dissertation is on tax and agency costs rationales for the use of long term leases. While much attention has been given to the valuation effects of debt and equity financing, the literature is surprisingly scant on the valuation effects of lease financing. This research develops a model that demonstrates that lease contracts can create wealth in two ways: one, by partially alleviating the Myers' underinvestment problem created by the issuance of risky debt and the other, by effectively transferring tax shields from low income lessees to high income lessors. The implications of the model are formulated into testable hypotheses which are empirically tested in both financial leases and sale and leaseback transactions. Several new empirical findings are reported in the study. Evidence presented indicates that the market reacts favorably to lease announcements by lessees involved in either sale and leaseback transactions or financial leases. No general conclusions could be drawn for the valuation impact for lessors. In addition, the results suggest that tax motives are of primary importance in explaining the use of lease financing. However, the agency cost rationale is not confirmed by the data.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Department dc:contributor.department

Business Administration

Grantor dc:publisher

Virginia Polytechnic Institute and State University

Year dc:date.issued

1988

Author dc:creator

• Torregrosa, Paul T.

Chair dc:contributor.committeechair

• Hansen, Robert S.

Committee members dc:contributor.committeemember

• Chance, Donald M.
• Frendewey, James O.
• Keown, Arthur J.
• Kumar, Raman

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

en_US

Handle dc:identifier.uri

http://hdl.handle.net/10919/87677

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/87677