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Do firms lease to hedge? CEO risk‐taking and operating lease intensity
Author(s) -
Devos Erik,
Li He
Publication year - 2021
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12282
Subject(s) - endogeneity , lease , incentive , executive compensation , business , hedge , panel data , shock (circulatory) , finance , accounting , econometrics , economics , corporate governance , microeconomics , ecology , biology , medicine
Operating leases are used extensively for financing, but their ability to separate ownership and use also creates hedging opportunities. We investigate whether firms recognize such opportunities by examining the relation between chief executive officer (CEO) risk‐taking incentives and the use of operating leases. Consistent with firms using operating leases to hedge, we find higher CEO risk‐taking incentives lower operating lease intensity. To address endogeneity, we use the adoption of Statement of Financial Accounting Standards 123R as an exogenous shock to option compensation, dynamic panel generalized method of moments, simultaneous equations, and change regressions. Our results are robust to placebo and alternative tests.