The operating lease accounts for a large fraction of firms’ total productive physical capital and it is important for firms’ investment and real production. Empirical facts show that the aggregate productivity measure is an overestimation without considering leased capital (Hu et al., 2024). In this paper, I explore the effect of leased capital on aggregate productivity in general equilibrium. Leased capital can directly alleviate collateral constraints and mitigate capital misallocation, boosting aggregate productivity (Hu et al., 2020). However, leasing can lead to an increased demand for labor, driving up wages, which results in a decrease in the number of producing firms and their optimal capital scale. These indirect effects can lead to a decline in aggregate productivity. Quantitatively, the indirect effects dominate the direct effects with counterfactual leasing-improved policy, and thus aggregate productivity with leased capital decreases.

We investigate theoretically the effect of firm opacity, the degree of information asymmetry between firms and outside investors, on whether Corporate Social Responsibility (CSR) activities signal firm value. In our model, a profit-maximizing firm chooses whether to conduct costly CSR activities observable to potential investors and whether to undertake internal corporate and managerial actions that improve its value, which is unobservable to potential investors. We show that the firm is more likely to perform CSR when it undertakes the value-enhancing internal actions in equilibrium, and hence, CSR signals the firm’s value and increases investors’ expected valuation of the shares, only when the firm is moderately opaque. Empirical implications regarding the effect of firm opacity on the correlation between CSR and firm value are discussed.

Leased capital accounts for a large fraction of U.S. public firms’ total productive physical capital. In this paper, we extend the neoclassical investment q theory with financial frictions by explicitly considering firms’ option to lease. Our model features firms’ optimal buy-versus-lease decisions with collateral constraints and monitoring costs, and gives a strong implication that measured Tobin’s Q has to be adjusted by leased capital. Empirically, we use our model as guidance to construct the lease-adjusted Tobin’s Q, consistent with the recent leasing accounting change (ASC 842). We show that our lease-adjusted Tobin’s Q is a superior proxy for investment opportunities, especially for firms that rent more capital.