WORKING PAPER SERIES NO. 392 / SEPTEMBER 2004: THE ROLE OF CENTRAL BANK CAPITAL REVISITED

Beginning with Titman and Wessels (1988), then Rajan and Zingales (1995) and more recently Frank and Goyal (2004), the empirical corporate finance literature has converged to a limited set of variables that are reliably related to the leverage of non-financial firms. Leverage is positively correlated with size and collateral, and is negatively correlated with profits, market-to-book ratio and dividends. The variables and their relation to leverage can be traced to various corporate finance theories on departures from the Modigliani-Miller irrelevance proposition (see Harris and Raviv, 1991, and Frank and Goyal, 2008, for surveys). ...
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WORKING PAPER SERIES NO. 392 / SEPTEMBER 2004: THE ROLE OF CENTRAL BANK CAPITAL REVISITED