Conference Agenda
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Session Overview |
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SAT 6-3: Financial Products
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Leasing as a corporate risk management mechanism 1Peking University, HSBC Business School, China, People's Republic of; 2Shanghai University of Finance and Economics This paper highlights leasing as a key corporate risk management mechanism for hedging capital valuation risks, extending beyond its traditional financing role. Financially constrained firms often face a trade-off between financing and hedging due to collateral competition, a challenge known as the ”corporate risk management paradox” (Rampini and Viswanathan, 2010, 2013). Leasing contracts, where the lessor serves as both creditor and insurance provider, offer a more collateral-efficient hedging solution—an aspect previously overlooked in the literature. We develop a dynamic agency-based model to explore leasing’s dual role in financing and hedging. Using the staggered implementation of U.S. anti-recharacterization laws as a quasi-natural experiment, our empirical findings show that firms with greater capital value volatility— and thus stronger hedging needs—are more likely to lease, even when financing conditions improve. This evidence strongly supports our theoretical framework.
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