Kai Li (HKUST)

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Kai Li

Finance

A seminar by Kai Li from the Hong Kong University of Science and Technology

Title: Leasing as a Risk-Sharing Mechanism

Abstract: This paper argues leasing is a risk-sharing mechanism: risk-tolerant lessors (capital owners) provide insurance to financially constrained risk-averse lessees (capital borrowers) against systematic capital price fluctuations. We provide strong empirical evidence to support this novel risk premium channel. Among financially constrained stocks, firms with a high leased capital ratio earn average returns 7.35% lower than firms with a low leased capital ratio, which we call it the negative leased capital premium. We develop a general equilibrium model with heterogeneous firms and financial frictions to quantify this channel. Our study also provides a caveat to the recent leasing accounting change of IFRS 16: lease induced liability and financial debt should not be treated equally on firms’ balance sheet, as their implications for firms’ equity risks and cost of equity are opposite 

Start date:

11am Friday, 2 Aug 2019

End date:

12.30pm Friday, 2 Aug 2019

Venue:

CBE LT2

Presenter(s):

Kai Li

Updated:   18 July 2019 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team