LEASING FROM A CORPORATE PERSPECTIVE

Abstract

Corporate real estate represents a significant portion of a corporation's wealth and it should be utilised optimally for the increased benefits to the firm. However, studies done on the treatment of real estate by non-real estate corporations suggests that real estate assets are often under managed. This dissertation looks at the possible reasons for the under-utilisation of these assets by the firms and thus the failure to achieve the objective of profit maximization. Therefore, firms should adopt practices that will increase the corporate value through effective management of these real estate assets. This dissertation aims to offer leasing as a plausible option for more effective management of these assets. It will begin by introducing the concept of leasing and examines certain aspects of leasing from a corporate point of view. The notion of leasing as a substitute for debt is analysed in relation to the capital structure of the firm, hence, a model is developed that seeks to show the relationship between leasing and the return on equity (R.O.E) of a firm and demonstrates the possibility of the existence of an optimal lease that could increase the firm's R.O.E and the firm's value.