Middle-East Journal of Scientific Research 12 (8): 1149-1156, 2012 ISSN 1990-9233 © IDOSI Publications, 2012 DOI: 10.5829/idosi.mejsr.2012.12.8.1816 Corresponding Author: Qamar Uz Zaman Malik, COMSATS Institute of Information Technology, Sahiwal, Pakistan. 1149 Firm Characteristics and Leasing Tendency of Pakistani Listed Companies Qamar Uz Zaman Malik, Rashid Saeed, Rehan Ahmed and Mazhar Javed 1 1 2 1 COMSATS Institute of Information Technology, Sahiwal, Pakistan 1 Voluntary Researcher 2 Abstract: The study analyzes the affect of firm specific characteristics on the leasing tendency of Pakistani listed companies. Balance sheet approach is used to approach total lease share for sample size of 163 companies for 2009. The regression results of manually collected data prove that size and growth of the firm are negatively related to the firms’ tendency to lease. Finding indicate that companies with low growth potential are more tend towards leasing than of companies with better growth rate. The results demonstrate complementary relationship between lease and debt financing, more tending towards leasing with greater debt payment ability. Restricted proves are there for the positive association of ownership structure and firms leasing tendency. Key words: Pakistan Leasing Tendency Total Lease Share Ownership Structure Ownership Concentration Cash Flow Coverage Size Growth INTRODUCTION Comparative to debt financing, asset based financing is Corporate sector gets a comparatively advantageous payments, lease term, option to purchase and most source of financing in the form of leasing than of debt important in some cases, may protect against the threat of financing. For financially struggling companies it seems obsolescence [3]. Contrary to that, it may be restrictive in to be a better source of financing than of buying decision. some cases to abide by the certain condition i.e. sale and Although it has a number of drawbacks with it, still asset lease back agreement. As per existing literature number of based financing attracts corporations to keep their debt UK, US and Canada based empirical studies have taking capacity enhanced and leverage comparatively low, divergent propositions regarding lease purchase, debt than of debt financing [1]. Leasing gives a lessee the right capacity and tax decisions. Leasing is considered as a to use the asset for a specified amount of charges over substitute of debt financing with the capability to time with a multiple options in both operating and finance enhance debt taking capacity [1, 4-6]. Many others lease. It is custom made financial solution which is consider leasing and debt financing go side by side both normally in form of operating, capital or finance and sale with the relevance and irrelevance of taxation issue, and buyback with residual value and bargain purchase keeping it an academic and research issue including Ang options and variety of tax benefits as per the tax rules of and Peterson, Drury and Braund, Duke, Franz, Toy and a particular economy. Different forms of leasing Hunt, Callimaci, Fortin and Landry [7-10]. One of the agreements have distinctive accounting, legal and tax motivating factors of this research is that no such treatments as a part of financial decision making [2]. investigation has been conducted to determine the Finance lease is normally shown on the face of balance leasing policy of corporate sector of Pakistan. Secondly, sheet as a leased asset and is charged to income outcome may be helpful to the leasing corporations to statement as depreciation and lease finance charges. assess the critical factors regarding leasing decisions, Operating lease is an off-balance sheet item which allows consequently, investors and capital providers may also the lessee to keep its debt taking capacity enhanced. benefit from the deterministic behavior of size, growth, Leasing helps corporations to use other sources of cash flow coverage, ownership structure and leverage in financing to fulfill their liquidity and capital requirements. corporate sector of Pakistan. flexible as the lessee could adjust the amount of periodical