The Term Structure of Lease Rates with

This paper focuses on the defaultable lease rate term structure with endogenous default. 7 We combine the competitive lease market argument proposed by Grenadier (1996) and the 8 endogenous default structural model proposed by Leland and Toft (1996) to examine the 9 interaction between the lessee’s capital structure and the equilibrium lease rate. Under this 10 framework, determining the lease rate is a simultaneous equation problem that captures the 11 trade-off between debt and lease financing. Using data on 2,482 real estate lease transac12 tions, we empirically confirm the predictions derived from the numerical analysis of the 13 model. 14