Topic: Leasing as a Mitigation Channel of Capital Misallocation

Speaker: Kai Li, Professor of Finance, Peking University HSBC Business School

Time: 10:00am-11:30am, September 11

Location: 4-101

Abstract:

We argue that leasing is an important mechanism for mitigating credit constraint-induced capital misallocation, yet this channel has been widely overlooked in the current macro-finance literature. We demonstrate and quantify this novel channel through a dynamic general equilibrium model, which features heterogeneous firms, collateral constraints, and an explicit buy versus lease decision. Furthermore, our model provides guidance on the empirical measurement of capital misallocation: ignoring leased capital and its mitigation effect can result in significant overestimations of measured capital misallocation and its cyclicality. We use firm-level data to document strong empirical evidence consistent with our model.