The dependent variable leverage is one minus the ratio of equity over assets in market values. It therefore includes both debt and non-debt liabilities such as deposits. The argument for using leverage rather than debt as the dependent variable is that leverage, unlike debt, is well defined (see Welch, 2007). Leverage is a structure that increases the sensitivity of equity to the underlying performance of the (financial) firm. When referring to theory for an interpretation of the basic capital structure regression (1), the corporate finance literature typically does not explicitly distinguish between debt and non-debt liabilities (exceptions are the.
