Most discussions of corporate capital structure effectively assume that all debt is the same. Yet debt differs by maturity, covenant restrictions, conversion rights, call provisions, and priority. Here, the authors examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. They analyze the variation in the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred stock both as a fraction of the firm's market value and as a fraction of total fixed claims. The authors' evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis.

Most discussions of corporate capital structure effectively assume that all debt is the same. Yet debt differs by maturity, covenant restrictions, conversion rights, call provisions, and priority. Here, we examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. We analyze the variation in the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred stock both as a fraction of the firm's market value and as a fraction of total fixed claims. Our evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis.

This paper develops and tests hypotheses that explain the choice of accounts receivable management policies. The tests focus on both cross-sectional explanations of policy-choice determinants, as well as incentives to establish captives. The authors find size, concentration, and credit standing of the firm's traded debt and commercial paper are each important in explaining the use of factoring, accounts receivable secured debt, captive finance subsidiaries, and general corporate credit. They also offer evidence that captive formation allows more flexible financial contracting. However, the authors find no evidence that captive formation expropriates bondholder wealth.

This paper develops and tests hypotheses that explain the choice of accounts receivable management policies. The tests focus on both cross‐sectional explanations of policy‐choice determinants, as well as incentives to establish captives. We find size, concentration, and credit standing of the firm's traded debt and commercial paper are each important in explaining the use of factoring, accounts receivable secured debt, captive finance subsidiaries, and general corporate credit. We also offer evidence that captive formation allows more flexible financial contracting. However, we find no evidence that captive formation expropriates bondholder wealth.

The existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax-related incentives for corporate leasing policy. Our analysis suggests that taxes are important in identifying potential lessees and lessors, but are less important in identifying the specific assets leased. We provide a unified analysis of the various incentives affecting the lease-versus-purchase decision. We then show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering.

The existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax‐related incentives for corporate leasing policy. Our analysis suggests that taxes are important in identifying potential lessees and lessors, but are less important in identifying the specific assets leased. We provide a unified analysis of the various incentives affecting the lease‐versus‐purchase decision. We then show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering.

George J. Benston, Clifford W. Smith, Jr., A Transactions Cost Approach to the Theory of Financial Intermediation, The Journal of Finance, Vol. 31, No. 2, Papers and Proceedings of the Thirty-Fourth Annual Meeting of the American Finance Association Dallas, Texas December 28-30, 1975 (May, 1976), pp. 215-231