Sale-and-Leaseback Agreements and Enterprise Valuation

E. Han Kim, Wilbur G. Lewellen and John J. McConnell

Journal of Financial and Quantitative Analysis, 1978, vol. 13, issue 5, 871-883

Abstract: The literature on leasing has generally concentrated on providing management with a selection criterion for the lease-versus-purchase decision; over the years, a variety of recommendations have been advanced ([1], [3], [6], [8], [16], and [18]). More recent papers, however, have shown that the terms of leasing contracts in a transaction-costless competitive capital market will inevitably be such as to render the stockholders of value-maximizing firms indifferent to that decision ([11] and [12]). Simply put, competition among potential lessors-together with the mandates of securities-price-equilibrating trading activities of investors in lessee and lessor firms—will necessarily drive the present values of the cash flows associated with lease arrangements to parity with direct asset purchase prices.

Date: 1978
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