Financial constraints and the decision to lease – Evidence from German SME

The objective of this paper is to test the hypothesis that in particular financially constrainedfirms lease a higher share of their assets to mitigate problems of asymmetric information. Theassumptions are tested under a GMM framework which simultaneously controls forendogeneity problems and firms’ fixed effects. We find that the share of total annual leaseexpenses attributable to either finance or operating leases is considerably higher forfinancially strained as well as for small and fast-growing firms – those likely to face higheragency-cost premiums on marginal financing.[...]