Do product market threats affect the leasing decision?

Abstract We examine the impact of product market threats on firms' leasing decisions. Using fluidity as a measure of these threats, our analysis shows that product market threats significantly increase firms' reliance on leases. This effect is more pronounced for firms with greater financial constraints, cash‐flow volatility, predation and obsolescence risk, information asymmetries, and weak corporate governance. We also show that the economic benefits of leasing to counter competitive threats are substantial and diverse, including capturing growth, maintaining profitability, and mitigating inefficient capital allocation. These findings suggest that firms strategically use leasing as a defense mechanism against product market threats.