Non-cancellable operating leases and operating leverage
Date
2016
Authors
Dogan, F. G.
Editor(s)
Advisor
Supervisor
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Co-Supervisor
Instructor
Source Title
European Financial Management
Print ISSN
13547798
Electronic ISSN
Publisher
Blackwell Publishing Ltd
Volume
22
Issue
4
Pages
576 - 612
Language
English
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Journal Title
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Volume Title
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Abstract
This paper explores the link between a firm's non-cancellable operating lease commitments and stock returns. Firms with more operating lease commitments earn a significant premium over firms with fewer commitments, and this premium is countercyclical. Non-cancellable operating lease payments represent a major claim on a firm's cash flows. Firms with high levels of operating leases have higher cash flow sensitivity to aggregate shocks and hence higher operating leverage. The relationship between operating leases and stock returns is stronger in small firms than in big firms. © 2015 John Wiley & Sons, Ltd.