Journal of Corporate Finance Vol. 80 2023
Leased capital and the investment-<mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML" altimg="si5.svg" display="inline" id="d1e5737"><mml:mi>q</mml:mi></mml:math> relation
Abstract
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.
- DOI
- 10.1016/j.jcorpfin.2023.102354
- Volume
- 80
- Pages
- 102354
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref