Asset Specificity and the Ownership of Buildings

Abstract

This paper examines the impact of asset specificity on firms’ decisions to own or lease their buildings. We present evidence that these decisions are primarily a function of efficiency concerns rather than opportunistic motives. We predict that firms requiring highly specific buildings in their operations are more likely to own, rather than to lease, their buildings, and we provide empirical evidence that supports our prediction, after controlling for potential opportunism. Our findings provide rare large-sample evidence consistent with a theoretical link between asset specificity and asset ownership as argued in the literature on economic organization.