Determinants of Lease Financing Decisions among Insurance Companies in Kenya

Abstract

Purpose: The purpose of the study was to establish the determinants of lease financing decisions among insurance firms in Kenya. The study sought to establish the important factors that are considered by firms in making leasing decisions.

Methodology: The research adopted a census survey on all the 46 insurance firms registered in Kenya. Descriptive statistics was used in summarizing and analyzing the data.

Findings: The findings revealed that, the majority of respondents consider leasing as an important and essential alternative to borrowing. This means that insurance companies evaluate the cost of leasing assets relative to cost of borrowing as is suggested in finance theory. It was also clear from the findings that the most leased asset were financial lease as opposed to operating lease by insurance companies and that the  most leased assets were land and building.

Implication: The study concluded that four factors are essential to leasing decision namely: tax rate policy, cost of borrowing, financial constraints and legal framework and other factors as  largely very important to essential in leasing decisions  as , nature of the assets, liquidity, and agency cost, lease information availability, profitability, accounting policies, financial distress, total debt ratio and availability of financial resources, hence there is a significant relationship between determinants of leasing and lease financing in firms in the insurance industry.

Value:  This study extends knowledge  to theory building in financing  specifically in lease financing by  companies to enhance their services by embarking on marketing their services, creating awareness and building a sound legal framework to motivate many firms in making lease decisions.

Key words: Financial leases, operating leases, lease financing, insurance companies