Leasing Decisions and Credit Constraints: Empirical Analysis on a Sample of Italian Firms

Date01 March 2015
Published date01 March 2015
Leasing Decisions and Credit
Constraints: Empirical Analysis on a
Sample of Italian Firms
Stefania Cosci
LUMSA University, Rome, Italy
E-mail: s.cosci@lumsa.it
Roberto Guida
LUSPIO University, Rome, Italy
E-mail: r.guida@luspio.it
Valentina Meliciani
University of Teramo, Teramo, Italy
E-mail: vmeliciani@unite.it
Although lease nancing provides a signicant source of funds enabling many
companies to invest, few studies examine the determinants of leasing in Continental
Europe and we are aware of no study on the Italian case. This paper investigates the
relationship between nancial constraints and leasing decisions for a sample of
Italian rms. In particular, it investigates the determinants of rm leasing decisions,
the degree of substitutability between leasing and debt, and the impact of leasing on
the probability of rms feeling credit rationed. Our results support the hypothesis
that leasing preserves capital, thus helping to relieve credit constraints.
Keywords: Leasing, debt finance, credit rationing, capital structure
JEL classification: G32
1. Introduction
Lease nancing provides an important source of funds, enabling many companies to
invest in property, plant, and equipment.
However, relatively few theoretically driven
We would like to thank an anonymous referee and John Doukas (the editor) for helpful
comments and suggestions.
The ratio between leasing and all fixed investment in plant and equipment in 2010 was
17.1% in US, 18.5% in UK, 14.3% in Germany, 13.1% in Italy, and 10.5% in France (White
Clarke Global Leasing Report, 2011).
European Financial Management, Vol. 21, No. 2, 2015, 377398
doi: 10.1111/j.1468-036X.2013.12019.x
© 2013 John Wiley & Sons Ltd
empirical studies examine the determinants of leasing decision for nonUS/UK rms
(Deloof and Verschueren, 1999 and Deloof et al., 2007 examine Belgium, while
Neuberger and RäthkeDöppner, 2013 focus on Germany).
The early theoretical models focus on the differences between lessee and lessor tax
positions as the primary rationale for leasing.
More recently, Eisfeldt and Rampini
(2009) develop a model, which they empirically test on a sample of US rms, in which
rms that are more nancially constrained lease more of their capital assets than less
constrained rms. These authors argue that a key advantage of leasing over lending is the
ability to repossess an asset without complex procedures in case of default. This may
permit the lessor to extend more credit than a lender whose claim is secured by the same
The repossession advantage of leasing is critical to understanding the relationship
between leasing and nancial constraints. Only in the case of very rmspecic, not easily
marketable assets does leasing resemble an unsecured loan, and a rm cannot increase its
funding capacity by leasing rather than buying an asset. In all other cases, leasing can, by
preserving capital, help to release rm credit constraints.
The main aim of this paper is to test the relevance of the repossession advantage of
leasing outside the US, on a sample of Italian rms. To our knowledge, this is the
rst study to investigate the determinants of Italian rmsleasing decisions, despite
the fact that Italy is characterised by relatively high leasing volume in terms of
percentage of GDP (1.25) lower than that of Germany (1.59) and the US (1.33), but
higher than those of France (1.21), Belgium (1.16), Canada (1.03), Spain (0.70), and the
UK (0.59).
The Italian case is interesting also in that it represents an outofsampleextension of
Eisfeldt and Rampinis (2009) USbased study to a context that is different from the
American one and because it resembles other continental European countries. In
particular there are important differences between Italy and the US in terms of property
regulation (Italian law grants lessors more protection than AngloAmerican law) and rm
size (Italy is characterised by an overwhelming preponderance of small rms). In both
respects, Italy is closer to other continental European countries, and this entails that the
Italian evidence may have broader implications for the role of leasing in relaxing credit
constraints in continental Europe.
Italian law, like other Continental European civil law systems, does not recognise the
distinction between economic (substantial) property rights and juridical (formal) property
rights, as is typical in AngloAmerican common law systems. As a consequence, lessors
are more protected in Continental European legal systems than in the AngloAmerican
framework, suggesting that the repossession advantage of leasing may be particularly
relevant in Italy and other Continental European civil law countries.
See Myers et al. (1976); Miller and Upton (1976); Lewellen et al. (1976); Brealy and Young
(1980); Drury and Braund (1990); Barclay and Smith (1995); Sharpe and Nguyen (1995);
Graham et al. (1998); Adedeji and Stapleton (1996); Lasfer and Levis (1998).
Data refer to 2010 and are taken from White Clarke Global Leasing Report (2011).
Data from US Census Bureau (Statistics of US Businesses) and from Eurostat (Structural
Business Statistics) show that in 2010 small rms (less than 50 employees) represented 28%
of total employment in the US and 50% of total employment in EU27 countries.
© 2013 John Wiley & Sons Ltd
378 Stefania Cosci, Roberto Guida and Valentina Meliciani

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