On the financial drivers and implications of leasing real estate assets The Donaldsons-Lasfer's Curve

Purpose - This paper aims to contrast the financial costs and benefits of leasing, rather than owning real estate assets. Design/methodology/approach - The main argument is that leasing is beneficial. The hypothesis is tested using a total of 2,343 UK-quoted companies over the period 1989-2002, resulting in 14,101 pooled time-series and cross-sectional observations. Findings - The results indicate that large and high-growth companies are likely to lease than to own these assets. Companies that lease are more efficient in using their real estate and that these benefits are compounded in share price valuation as leasing propensity is strongly leasing propensity is not linear, but an inverse U-shaped, suggesting that the market is also considering the costs of not owning real estate. Research limitations/implications - The study relied on historical accounting values of real estate rather than market values which are not available in machine readable format, and there was no data on the type of real estate and its location. Originality/value - The results of the paper provide strong and consistent evidence that the market values the costs and benefits of leasing.