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

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

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

Chu, Yongqiang, Collateral, Ease of Repossession, and Leases: Evidence from Anti-Recharacterization Laws (May 23, 2018). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=2595187 or http://dx.doi.org/10.2139/ssrn.2595187

Yongqiang Chu (Contact Author)

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

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