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Sale-and-Leaseback Agreements and Enterprise Valuation

Published online by Cambridge University Press:  06 April 2009

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

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 5 , December 1978 , pp. 871 - 883
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

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