This paper explores the link between a firm's non-cancellable operating lease commitments and stock returns. Firms with more operating lease commitments earn a significant premium over firms with fewer commitments, and this premium is countercyclical. Non-cancellable operating lease payments represent a major claim on a firm's cash flows. Firms with high levels of operating leases have higher cash flow sensitivity to aggregate shocks and hence higher operating leverage. The relationship between operating leases and stock returns is stronger in small firms than in big firms. © 2015 John Wiley & Sons, Ltd.