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). .
