2006b, “Asset Liquidity, Boundaries of the Firm and Financial Contracts: Evidence from Aircraft Leases,” Working Paper

This paper uses data on aircraft leasing contracts to examine how contracting costs simultaneously shape \u85rmsboundaries as well as \u85rms \u85 nancial structure. In partic-ular, I study how the liquidity of the market of di¤erent types of aircraft a¤ects the lease/own decision, the optimal maturity of lease contracts, and the mark-ups of lease rates over prices. A lease contract integrates in a single agreement the primary issues of a vertical and a \u85nancing contract, but the literatures on vertical and \u85nancial contracting make di¤erent predictions on how the liquidity of the assets should a¤ect lease contracts. For example, more liquid aircraft are more redeployable and should then have longer nancing contracts (as in Shleifer and Vishny (1992)), but are also less speci\u85c and should then have shorter vertical contracts (as in Williamson (1979)). I nd that asset liquidity a¤ects the existing types of lease contracts di¤erently: operating leases adhere to the predictions of the vertical contracting literature, while capital leases follow the \u85nancial contracting predictions. This suggests that the growth of operating leases over time is an additional aspect of the vertical disintegration of production