Managers’ Investment Decisions: Incentives and Economic Consequences Arising from Leases

What incentives do managers face that might give rise to inefficient investments in leases? If make leases, what economic consequences arise for those and their firms? We develop a model of expected leased assets use the residuals from as proxies investments. find that, contrast capital expenditures, leasing appears be mechanism through which can seemingly over-invest, even among firms with high quality financial reporting negative free cash flows. Examining consequences, we predict unexpected trigger increasing future sales growth but declining earnings long three years ahead. also relation contemporaneous stock returns, suggesting investors view leases value destructive. Finally, despite returns are associated higher CEO compensation driven primarily by growth. Our study suggests contracts reward may managers’ drive larger-than-expected assets, lead slower share price investors. results should inform board members, investors, researchers interested investment efficiency, corporate governance, leases.