WORKING PAPER SERIES NO 845 / DECEMBER 2007: RUN-PRONE BANKING AND ASSET MARKETS

All coefficients are statistically significant at the one percent level, except for collateral, which is significant at the 10 percent level. All coefficients have the same sign as in the standard regressions of Rajan and Zingales (1995), Frank and Goyal (2004) and as in our leverage regression using a sample of the largest firms (except the market to book ratio, which is insignificant for the market leverage of those firm). Banks’ leverage depends positively on size and collateral, and negatively on the market-to-book ratio, profits and dividends. The model also fits the data very well: the R2 is...