Capital Structure and the Substitutability versus Complementarity Nature of Leases and Debt
Henry H Huang and
Review of Finance, 2019, vol. 23, issue 3, 659-695
The capital structure irrelevance argument of Modigliani and Miller (1958) implies that the use of debt or leases should have no impact on firm values. This classical argument leaves out several important considerations crucial for the result, in particular, counterparty credit risk. We re-examine the capital structure problem for firms that can utilize debt and leases in the presence of counterparty risk. Our numerical and empirical estimates show a negative term structure of lease rates that steepens as a function of counterparty risk. Moreover, we document numerical evidence for the complementary relationship between debt and leases in the presence of counterparty risk.
Keywords: Leasing valuation; Credit risk; Endogenous default (search for similar items in EconPapers)
JEL-codes: G32 G13 R3 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:23:y:2019:i:3:p:659-695.
Ordering information: This journal article can be ordered from
Access Statistics for this article
Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano
More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().