Leasing as a strategic response to uncertainty: how firms mitigate risk and preserve liquidity

Abstract This study examines how firms use leasing as a strategic tool to navigate uncertainty. Using firm-level data and exogenous shocks to instrument for uncertainty, we show that a one standard deviation increase in uncertainty raises firm leasing by 6.65 percentage points, with stronger effects for firms with lower liquidity. By analyzing U.S. firms and employing instrumental variables, we argue that leasing serves as both a financial solution and a strategic flexibility mechanism. The findings show that operating leases’ self-collateralized nature helps firms maintain liquidity and operational agility during volatile periods. This research contributes to the corporate finance and strategic management literature by establishing the relationship between uncertainty and leasing, offering managers practical insights for capital structure optimization under uncertainty. Our findings also highlight leasing’s stabilizing role in balancing flexibility and resilience in the presence of external uncertainty.