Leasing Decision, Banking Debt and Moral Hazard

This article proposes an explanation of the structures of external financing by analysing the consequences of a leasing decision for unsecured creditors. A leasing decision generates two effects: the appearance of an agency cost related to the retrogradation of the existing banking claims and a reduction in the agency cost of debt related to the asset substitution problem. In opposition to a lessor, the banking creditor bears the agency cost that it passes on to the firm and its shareholders by an increase in the debtor rate or stronger collateral. The presence of excessive agency costs can however lead the creditor to ration the firm, and consequently constrains firms in their choice of external financing. Therefore, we can expect to observe quite marked external financing policies. The empirical study carried out on a sample of 817 Belgian companies shows two results: the companies seem to privilege rather typified financing policies: weak or significant recourse to leasing. Few companies in the sample have balanced structures. In the same way, the amplitude of the agency costs of leasing is reflected in the interest rate and the amount of collateral required. * Professor, University of Lille 2, ESA. ESA, 1 P lace Deliot, BP 381, 59020 Lille Cedex. Tel. 03-20-90-74-77. Fax. 03 -20-90-77-02. Email : debodt@fin.ucl.ac.be ** Student, GERME and FLSE, Catholic University of Lille and LABORES (URA 362). FLSE, 60 Boulevard Vauban, BP 109, 59030 Lille Cedex. Tel. 03-20-13-40-37. Email : mc.filareto@flse.fupl.asso.f r *** Professor, University of Lille 2, ESA and Labores (URA (362)) . ESA, 1 P lace Deliot, BP 381, 59020 Lille Cedex. Tel. 03 -20-90-74-75. Fax. 03 -20-90-77-02. Email : lobez@hp-sc.univ-l i l le2 . f r.