Financial constraint and the choice between leasing and debt

Jane Raung Lin*, Chia Jane Wang, De Wei Chou, Fei Chun Chueh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)


Earlier studies suggest that companies use debt and leases interchangeably as the alternative external financing choice. We provide evidence that firms are not indifferent between debt and leases and the lease versus debt decision depends on the extent to which firms are financially constrained. For the most constrained firms leasing (debt) is negatively (positively) related to internal funds and for the less constrained firms the results are just the opposite. Our findings support the hypothesis that constrained firms tend to choose leasing over debt financing. The results are robust to various estimation methods that control for endogeneity and panel dynamics.

Original languageEnglish
Pages (from-to)171-182
Number of pages12
JournalInternational Review of Economics and Finance
Publication statusPublished - 2013 Jun


  • Debt financing
  • Financial constraint
  • Leasing
  • Substitute

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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