Collateral, Ease of Repossession, and Leases: Evidence from Antirecharacterization Laws

This paper studies how the ease of repossessing collateral in bankruptcy affects corporate leasing policy. Using plausibly exogenous variation of the ability to repossess assets generated by state antirecharacterization laws, I find that the antirecharacterization laws, which make collateral repossession easier for secured lending, reduces corporate leasing. Consistent with the argument that only financially constrained firms value additional debt capacity because of the increased ability to repossess assets, I find that the effect concentrates in financially constrained firms. I also find that the effect is much stronger for firms with less specific assets. In addition, I find that the laws also affect leverage, cash holding, and corporate investment.

This paper was accepted by Gustavo Manso, finance.