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This research investigates how economic policy uncertainty affects corporate lease decisions in various countries.

April 30, 2026The Journal of Financial Research0 citationsOpen Access

Economic policy uncertainty and international corporate leasing

GAGoutham AbotulaWest Texas A&M University DFDouglas (DJ) FairhurstWashington State University YNYoonsoo NamClemson University

Key Points

This research investigates how economic policy uncertainty affects corporate lease decisions in various countries.
Analyzed corporate leasing behaviors across 19 countries.
Investigated the relationship between economic policy uncertainty and the use of operating leases.
Examined the impact on financially constrained firms and those with investment irreversibility.
Increased use of leasing occurs with higher economic policy uncertainty.
The effect is stronger for financially constrained firms and those facing operating volatility.
Leasing is reduced in countries with weak contract enforcement and limited credit markets.

Abstract

Abstract We examine the effect of economic policy uncertainty (EPU) on the corporate lease decision using an international sample of 19 countries. The use of operating leases increases when EPU is heightened. The documented leasing increase is more pronounced for financially constrained firms, firms facing greater operating volatility, or those that have higher investment irreversibility. In contrast, the use of leasing in times of high EPU is mitigated when a country is unlikely to enforce the contracts or the country's credit markets dampen the demand for leasing. Collectively, the evidence supports theoretical arguments that leased assets are a more flexible form of investment than purchased assets.

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