An Examination of Leasing Policy, Tax Rates, and Financial Stability in the Restaurant Industry

Arun Upneja · Michael C. Dalbor

29 citations0/0 files storedJournal of Hospitality & Tourism Research

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Corporate Finance and Governance Financial Analysis and Corporate Governance Corporate Taxation and Avoidance

Abstract

Prior research has examined the relationship between debt financing and marginal tax rates to help explain the capital structure choice of firms. However, this type of measure is subject to an endogeneity problem, whereby an examination of postfinancing tax rates and debt financing produces a spurious negative relationship. Therefore, a before-financing tax rate may be a more accurate indicator of the use of debt financing versus leasing. This article uses both tax rate estimates to examine the relationship between tax rates and leasing behavior for a sample of restaurant firms. The authors also document a negative relation between the use of operating leases and the marginal tax rate faced by the firm and compare the accuracy of the two tax rate measures in predicting leasing and debt policy. Finally, the authors examine the relationship between leasing behavior and a firm’s financial stability.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1984The Capital Structure Puzzle 1988The Determinants of Capital Structure Choice 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1984The Capital Structure Puzzle

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