Operating lease decision among east Asian firms; critical factors for sustainable development

• Published date: 01 May 2021
• Author: Ruslan Bugenbayev,Najla Shafighi,Behrang Samadi,Benjamin Chan Yin Fah,Behrooz Gharleghi
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2221

ACADEMIC PAPER

Operating lease decision among east Asian firms; critical

factors for sustainable development

Ruslan Bugenbayev

1

| Najla Shafighi

2

| Behrang Samadi

1

|

Benjamin Chan Yin Fah

1

| Behrooz Gharleghi

3

1

Faculty of Business and Management, Asia

Pacific University of Technology and

Innovation, Kuala Lumpur, Malaysia

2

Business and Economics, bbw University of

Applied Sciences, Berlin, Germany

3

Dialogue of Civilizations Research Institute,

Berlin, Germany

Correspondence

Behrooz Gharleghi, Dialogue of Civilizations

Research Institute, 10117, Berlin, Germany.

Email: bgharleghi@doc-research.org

The purpose of this article is to identify the determinants of the operating lease

among Malaysian firms in order to ensure the sustainable development of the firms.

Data are collected from the top 100 listed companies in seven sectors of the econ-

omy covering 2005–2014. The pooled ordinary least square, fixed effect and random

effect models were used for estimation. A robust SE estimation was also applied for

cross-sectional and time dependence estimation. The empirical results of the F-test,

LM test, and Hausman test suggest that the fixed-effect model is the most appropri-

ate in the Malaysian lease context. The robust SE test confirms the findings of the

previous models. The results of the fixed effect model indicate that lease has a nega-

tive relationship with FAE, a positive relationship with interest cost (IC), a negative

relationship with profit, and a positive relationship with size, and tax rate.

1|INTRODUCTION

One of the most financially attractive developments in recent decades

has been the availability of lease financing as an alternative approach

by which companies can acquire and use assets. This is a way that

paves the way to sustainable development. This has led to increasing

attention by researchers and the academic literature to this financial

tool as a driver of asset acquisition given it can have a significant influ-

ence on the development of companies. This is especially so for small

and medium-sized enterprises (SMEs) that are more vulnerable to eco-

nomic fluctuations and macroeconomic crises.

An operating lease is short term in nature when compared to the

useful life of the asset that is being leased and is used to acquire asset

on a relatively short-term basis. O'Brien and Nunnally (1983) in their

examination on the lease-buy alternatives found leasing a better alter-

native compared to the purchase of the asset. This concept was

referred to as the Net Advantage of a Lease (NAL) analysis, which

may be considered in the initial capital budgeting of an asset. O'Brien

and Nunnally's study concludes that, according to the survey of cor-

porate leasing analysis in 1982, many respondents changed their

emphasis from the cost of capital to the debt cost in the course of a

NAL investigation. This change was attributed to the situation where

the residual value and difference operating costs were found to be

insignificant. However, their approach was found to be more appro-

priate for lease investigation rather than for capital budgeting.

Nowadays the use of lease to finance activities is common among

companies. Researchers have found a company's decision on whether

to lease or buy is a critical element in capital market investment deci-

sions and will depend on accounting standard settings and decisions

relating to capital financial disclosure. Morais (2013) in his study of

major factors determining leasing versus buying found that ownership

structure and lease tendency have a negative relationship with leas-

ing. In addition, a survey of Callimaci, Fortin and Landy (Callimaci, For-

tin, & Landry, 2011) using a Canadian data set identified that the

leasing propensity increases with more leverage, with firms with con-

strained finance, firms with high-tax, and firm's growth, while decreas-

ing as firm size increases. Further they found that ownership structure

is negatively related to the lease propensity, which suggests that

highly concentrated Canadian firms use less leasing.

Bathala and Mukherjee (1995) reported in an in-depth survey that

small companies rarely used textbook recommendations to lease or

borrow and were commonly unaware of the explicit advantages of

leasing. Unlike large firms, it has been found that small firms are more

likely to offer dubious reasons, such as off-balance sheet accounting

and 100% financing as an advantage of leasing. Researchers have

examined different questions relating to a company's decision to lease

Received: 25 February 2020 Revised: 19 March 2020 Accepted: 9 June 2020

DOI: 10.1002/pa.2221

J Public Affairs. 2021;21:e2221. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of9

https://doi.org/10.1002/pa.2221