Collateral, Ease of Repossession, and Leases: Evidence from Anti-Recharacterization Laws
Forthcoming, Management Science
54 Pages Posted: 18 Apr 2015 Last revised: 26 Aug 2019
Date Written: May 23, 2018
Abstract
This paper studies how the ease of repossessing collateral in bankruptcy affects corporate leasing policy. Using plausibly exogenous variation of the comparative advantages in the ability to repossess assets between leases and secured lending generated by anti-recharacterization laws, I find that the anti-recharacterization laws, which make collateral repossession easier for secured lending, reduces corporate leasing. Consistent with the argument that only financially constrained firms value additional debt capacity due to increased ability of repossessing assets, I find that the effect concentrates on financially constrained firms. I also find that the effect is much stronger for firms with less specific assets.
Keywords: Leases, Ability to Repossess, Anti-Recharacterization Laws, Bankruptcy
JEL Classification: G32, G33, G38
Suggested Citation: Suggested Citation