The importance of company and asset characteristics in the use of leasing finance in the United Kingdom : an investigation
This study investigates the corporate use of leasing in the UK, incorporating into the analysis advances in capital structure theory. Prior to the mid-1990s, research in the area largely adopted the approach set out by Modigliani and Miller , the assumption being the validity of perfect capital markets with the existence of corporate taxes. Such an approach underlay the influential leasing models of Myers, Dill and Bautista  and the tax-based rationales for long-term leasing finance. This analysis was developed on two main fronts: by utilising more comprehensive measures for the firm's tax liability; and, more fundamentally, by looking at issues arising from the environment in which leasing operates, in particular focusing on company and asset characteristics as determinants of the decision to use finance and operating leases. A core sample of non-financial companies taken from the FT-All Share Index for the period 1993-5 was used, together with a smaller sample of companies recording operating lease commitments and, via a series of univariate and multivariate analyses, utilised a number of variables proxying for asset and firm characteristics. The results highlight the multifaceted nature of the leasing decision in the UK today and are a reflection of the changing fiscal and legislative environment in which leasing operates. The traditional tax-based hypothesis of the use of finance leases was only marginally supported. The study also confirmed the substitutional relationship between finance leases and corporate debt finance. Finally, firm and asset characteristics such as the size, liquidity and profitability of a company, were also shown to be influential determinants of the use of finance leases. The use of operating leases, meanwhile appeared not to be influenced by a company's use of debt finance, nor of the lessee's tax position, appearing instead to be inversely related to size and liquidity.