Leasing Research Papers - Academia.edu (original) (raw)

Lease financing is of late increasingly becoming a viable option to many organisation and county governments when it comes to funding projects and delivering crucial services. However, it is important for county governments to understand how cost effective the option is as compared to the traditional methods of procuring funds services. The economic benefits of leasing can be derived from the firm's choice of leasing relative to borrowing and acquiring the asset. The essence of leasing is reflected in the proposition that leasing provides customized financing with potentially unique cash flow and tax features. Unlike borrowing, the ownership of the asset remains with the lessor and the lessor can deduct tax allowances generated by the leased equipment. Therefore, the study sought to investigate the effect of leasing on financial performance of Trans Nzoia County government. The specific objective of this research paper was to analyze the effect of finance lease on the financial performance of Trans Nzoia County Government. The study was based on the Agency theory, the theory of Information Asymmetry, and the theory of Managerial Risk Aversion. The study adopted a descriptive survey research design where the population of the study was 10 departments of the County government of Trans Nzoia and entailed a sample of 10 county officials who were selected using purposive sampling method. The research instrument used was a 5 point Likert scale questionnaire and interview schedule was used as tool of collecting data.The measures of financial performance were taken as the dependent variables while amount of Finance lease, taken as the independent variables.The primary data was analyzed using Statistical Package for Social Science (SPSS) version 22. A regression analysis was conducted on the data set to determine the effect of leasing on the ROA for county government of Trans Nzoia. From the regression results, finance lease, had positive effects on ROA. Financial performance of the county government of Trans Nzoia is affected by the level of lease financing. The study recommends that county governments should be careful with the use of leasing as a method of financing their operations as evidence suggests that value is added through the use of leasing since there is a positive correlation between leasing and financial performance. This study will benefit county governments, as well as other organisationswho may want to explore the use of leasing to enhance their financial performance.. INTRODUCTION Over the years, Leasing has been consented as one of the cornerstones of modern financial sources and a field of crucial decision for corporate organizations globally.(Salam, 2013).The contractual agreement represents the lease between the two Parties, the lessee and the lessor, and gives the contract to the lessee the right to use certain assets for a specific time period owned by the lessor in return for periodic payments paid by the tenant for the owner. the use of leases have largely spread because of the advantages offered by the leases as an alternative to owning originally included leases many magazines including ships, aircraft , land , and buildings.Firms achieve their objectives of maximizing shareholders wealth by making successful investment decisions, which generate positive net cashflows. The leasing decisions concerns whether the firm should lease equipment, or borrows money and buy the equipment. Therefore it is a financing decision. Corporate managers should examine the cost of both: Leasing and borrowing in order to select the cheaper method of financing which increase the market value of the firm (Mohammad and Shamsi, 2008). It's the goal of the Kenyan government as well as county governments to ensure that services are procured in a more efficient, satisfactory and cost effective manner. In pursuit of this concept the Jubilee government lately urged county governments to embrace this idea by introducing the leasing of some specialised medical equipment to all County Referral Hospitals. Counties are devolved units in a devolved system of government. These units are, through the constitution, charged with the responsibility and mandate to deliver certain services to residents of their respective counties. The study is designed to analyze the effect of lease financing on service delivery in Trans Nzoia County. Kenya has recently seen an enormous growth in the leasing of business assets like cars and trucks, computers, machinery, manufacturing plants and agricultural land in addition to the traditional common leases of houses, office space and automobiles (Ombija, 2007). The obvious explanation for this growth is the advantage to the lessee being able to use an asset without having to buy it. However, the lessee is obligated to make periodic payments, usually monthly or quarterly. The lease contract also specifies who is to maintain the asset (Osaze, 1993). The leasing industry in Kenya is expected to grow in the coming years as the government changes its policy on purchase of assets. The Budget Policy Statement (2013/14) presented in the National Assembly by the cabinet secretary in charge of finance, Hon. Rotich, had provided for an estimated Kshs. 3 billion for leasing of