Conclusion - 營運租賃與負債之關聯性研究

6. Conclusion

This paper investigates the relationship between operating leases financing and debt financing. Debt and leases are both important financing instruments commonly used by companies nowadays. However, the relationship between leases and debt is controversial in the previous papers, particularly after Ang and Peterson (1984) present that leases and debt are components. Additionally, Yan (2006) empirically shows that operating leases and long-term debt is negatively related.

We first classify debt into short-term debt and long-term debt on the basis of maturity, and into secured debt and unsecured debt on the basis of security provision, and next examine their relationships with operating leases respectively. Besides, we also check operating leases related to financial variables. Second, after controlling the heteroskedasticity of disturbance term’s variance and the endogeneity of debt, we apply the general Tobit model to test this relationship. Finally, these empirical results demonstrate that operating leases are complements to short-tem debt, long-term debt and secured debt, and are substitutes to unsecured debt.

This paper shows a broader investigation between leases and debt, and provides

that a complete analysis of optimal capital structure should not ignore the role of leasing financing. In the future research, the consideration of marginal tax rate to calculate the NDT might get more precise result and the consideration of the management compensation policy that Smith and Wakeman (1984) present could make the investigation complete.

References

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Table 1

Descriptive Statistics

The summary statistics are based on 2710 observations for firms on COMPUSTAT with SIC code between 0110 and 5999 over the period 1996 through 2005. Operating leases-to-value (LRO) is the ratio of current- year rental expense plus present value of rental commitments over the next five years (discounted at 6.6 percent) to the market value of the firm, where market value is the book value of total debt plus the market value of equity and plus the net present value of operating leases. Short-term debt-to-value (STDR) is the ratio of the book value of “shorter” debt to the market value of the firm.

Long-term debt-to-value (LTDR) is the ratio of the book value of “longer” debt to the market value of the firm. Secured debt-to-value (SDR) is the ratio of the book value of total secured debt to the market value of the firm. Unsecured debt-to-value (USDR) is the ratio of the book value of total unsecured debt to the market value of the firm. NDT is the non-debt tax shields. Z_score is a modified version of Altman’s (1968) Z_score. Collateral is equal to net property, plants, and equipment divided by total assets. Uniqueness is research and development expenses divided by total assets. Size is the natural logarithm of the total assets. Profitability (Prof) is the ratio of operating income over total assets.

Variables Mean Std. Dev. Maximum Minimum

LRO STDR LTDR SDR USDR

NDT Z_score Collateral Uniqueness

Size Prof

0.02069 0.19409 0.05379 0.06645 0.01121 0.04568 2.31080 0.28233 0.03741 7.12611 0.16270

0.02236 0.11914 0.07412 0.09567 0.02662 0.03895 0.72207 0.14751 0.03677 2.01427 0.07911

0.21799 0.93305 0.67133 0.93785 0.26389 0.52410 5.60384 0.75917 0.26751 12.24690

0.62222

0.00000 0.00406 -0.16495 -0.06585 0.00000 -0.24884 -0.82649 0.02760 0.00024 1.85144 1.85144

Table 2

Pearson Correlation Coefficients for Variables

(continue)

Note: 1. Parenthetic value is p-value.

Variables LRO STDR LTDR SDR USDR NDT Z_score Collateral Uniqueness Size Prof Dv

Table 3

Censored (Tobit) Regressions of leases and OLS regressions of debt

The table summarizes the result from several time-series cross-sectional regressions. The sample consists of 2710 observations for firms with SIC code between 0110 and 5999 over the period 1996 through 2005. These models as follows,

(continue)

Note: 1. “***” is statistically significant at 1%, and “**” is statistically significant at 5%.

2. Parenthetic value is p-value.

Table 4

The Endogeneity of Debt

The table summarizes the endogeneity of the debt on leases from several censored (Tobit) regressions. The sample consists of 2710 observations for firms with SIC code between 0110 and 5999 over the period 1996 through 2005. These models as follows,

(continue)

The Endogeneity of the Debt to Operating Leases

Variables STDR LTDR SDR USDR

Note: 1. “***” is statistically significant at 1%, and “**” is statistically significant at 5%.

2. Parenthetic value is p-value.

Table 5

Censored (Tobit) Regressions of the relationship between operating leases and debt

The table summarizes the relationship between capital leases and the debt from several censored (Tobit) regressions. The sample consists of 2710 observations for firms with SIC code between 0110 and 5999 over the period 1996 through 2005. These models as follows,

(continue)

The relationship between Operating Leases and Debt

Variables STDR LTDR SDR USDR

Note: 1. “***” is statistically significant at 1%, and “*” is statistically significant at 10%

2. Parenthetic value is p-value.

Appendix A: Accounting for Leases

Definition of Capital and Operating Leases

Following is a brief list of the accounting rules that define capital and operating leases from the lessee. Statement of Financial Accounting Standards( FASB) NO. 13 provides the detail criteria for a lease contract to be specified as a capital or operating lease. A capital lease is defined as a lease that meets any one or more of four criteria.

(1) Transfer of Ownership. If the lease agreement transfers ownership to the lessee before the lease expires, without payment of additional compensation to the lessor;

the lease is considered a purchase financing arrangement, similar to an installment purchase.

(2) Bargain Purchase Option. The lessee can purchase the asset for a bargain price when the lease expires. A bargain purchase option requires comparing the option’s purchase price to the leased asset’s expected residual value at the maturity of the lease.

If the purchase option is well below the expected residual value, the lessee is not expected to pass up the savings, and the probability is high that the lessee will buy the asset at maturity.

(3) 75 Percent of Economic Life. The lease lasts for a least 75 percent of the asset’s expected economic life. A bargain renewal option to renew the lease at a rental rate below the expected fair market rental at the time of the exercise of the option, is considered to lengthen the lease life used in this determination.

(4) 90 Percent of Asset’s Value. The present value of the minimum lease payments is at least 90 percent of the asset’s fair value. The minimum lease payments is defined by SFAS No. 13 to mean “the payments that the lessee is obligated to make or can be required to make in connection with the leased property.” Of course, the minimum lease payments consist mainly of the periodic payments. However, minimum lease payments also include such items as the bargain purchase option or bargain renewal option payments. Some leases contain additional provisions that are included as minimum lease payment for failure to renew if it is expected that the renewal option will be rejected by the lessee.

Appendix B: Disclosure for Leases

The following information with respect to leases shall be disclosed in the lessee’s financial statements or the footnotes thereto.

A. For capital leases:

(1) The gross amount of assets recorded under capital leases as of the date of each balance sheet presented by major classes according to nature or function. This information may be combined with the comparable information for owned assets.

(2) Future minimum lease payments as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years, with separate deductions from the total for the amount representing executory costs, including any profit thereon, included in the minimum lease payments and for the amount of the imputed interest necessary to reduce the net minimum lease payments to present value.

(3) The total of minimum sublease rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented.

(4) Total contingent rentals actually incurred for each period for which an income statement is presented.

B. For operating leases having initial or remaining noncancelable lease terms in excess of one year:

(1) Future minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years.

(2) The total of minimum rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented.

C. For all operating leases, rental expense for each period for which an income statement is presented, with separate amounts for minimum rentals, contingent rentals, and sublease rentals. Rental payments under leases with terms of a month or less that were not renewed need not be included.

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