Economic policy uncertainty and international corporate leasing

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.