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Essays in Macroeconomics and Finance



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Xu, Yiming 


This thesis contains four chapters, which are at the intersection of macroeconomics and finance, specifically, the implications of leasing for capital and finance allocation efficiency. I focus on operating leases, which account for a significant proportion of the overall productive physical assets used by US firms (from the asset side), and are important external financing sources for firms (from the liability side). However, they were treated as off-balance-sheet items before the 2019 lease accounting rule changes in ASC 842 – hence they are important sources of “unmeasured” asset and liability.

The first chapter argues that leasing is an important mechanism for mitigating credit constraint-induced capital misallocation, yet this channel has been widely overlooked in the current macro-finance literature. This chapter demonstrates and quantifies this novel channel through a dynamic general equilibrium model, which features heterogeneous firms, collateral constraints, and an explicit buy versus lease decision. Furthermore, it provides guidance on the empirical measurement of capital misallocation: ignoring leased capital and the mitigation effect can result in significant overestimations of the level and cyclicality of measured capital misallocation. Strong empirical evidence is documented to support the model implications.

The second chapter studies leasing’s distinctive role in enhancing total factor productivity (TFP) through facilitating entry and technology adoption. As a form of more collateralizable financing, leasing provides financing for physical capital required in a more productive sector, and raises the expected payoff of entering this sector. This chapter analytically characterizes this extensive-margin role of leasing in terms of efficiency gains. Quantitatively, it shows that approximately 5% of TFP gains can be achieved from leasing along this channel.

The next chapter disentangles the sources of capital misallocation in the US when leased capital is explicitly factored in. Using the method of David and Venkateswaran (2019), this chapter obtains new estimates for various sources of lease-adjusted misallocation – including adjustment costs, uncertainty, and firm-specific factors that are correlated with productivity, or permanent to firms. Moreover, this chapter finds that the reduction in overall measured misallocation when adjusting for lease is largely explained by the effect of lease-adjustment through the latter two firm-specific factors.

Instead of studying the “true" production side, the final chapter focuses on firms’ liability (financing) side and examines the allocation efficiency of finance. A large overestimation of measured finance misallocation (Whited and Zhao, 2021) is documented when lease-induced debt is ignored among US manufacturing firms. Appropriately adjusting for lease-induced debt leads to a large inefficiency reduction in real value-added. Leasing improves the allocation of finance by raising the total amount of finance as well as by alleviating inefficient debt-equity combinations across firms. Finally, this chapter finds that factoring in lease-induced debt lowers both the level and dispersion of finance costs, consistent with the mitigation effect of lease-adjustment on finance allocation efficiency.





Giannitsarou, Chrysi


Capital misallocation, Collateral constraint, Entry, Leased capital, Marginal product of capital, Misallocation of finance, Technology adoption, Total factor productivity (TFP)


Doctor of Philosophy (PhD)

Awarding Institution

University of Cambridge