Do Financial Constraints Expand Lease Financing Capacity? In Perspective of Malaysian Firms

Abstract

The purpose of this study is to analyze the relationship between financial constraint factors that can affect the chosen of leasing for the firm in Malaysia. The sample of data consist of 1150 firms including listed firm, unlisted firm and SMEs with the total number of firm-years observation are 8339. This study covers 7 years period from year 2007 until 2014. The dependent variables are lease ratio and debt ratio while the independent variables are the financial constraint determinant such as internal funds, growth, collateral, and size. This study also include control variables such as uniqueness (R&D expenses), tax loss and macroeconomics factor such as based lending rates (BLR). The results indicate that not all financial constraint firms tend to used lease financing compare to debt financing. It depends on what types of financial constraint that the firm faces. For this analysis, the firm that have financial constraint in internal funds, collateral and size tend to used lease compare to debt financing. However, for the firms have less growth opportunities, it is difficult for them to choose either lease or debt financing because of their future survival.