Lease-Adjusted Productivity Measurement

We document that leased capital accounts for over 30\% of the total productive physical assets used by US public firms. We develop an analytical framework to show how ignoring this important proportion generates an overestimation of productivity. Such overestimation can be decomposed into two distinct channels: one is from the mismeasured factor share, and the other originates from the intensity of leased capital utilized by a firm. Empirically, we find that the overestimation in aggregate productivity is large, growing over time, and exhibits strong countercyclicality. This implies that recessions are more severe than previously thought, in the sense that the lease-adjusted productivity drops more. In the cross-section, the overestimation presents asymmetric patterns for firms with different characteristics. We also present strong empirical support for our decomposition of the overestimation. Our results emphasize the importance of explicitly adjusting for the ``unmeasured" leased capital in studies related to productivity measurements and distribution