Independent variable Relationship to Independent variable (policy

(firm characteristic debt ratio(+ or -) and decision variable)

variable)

1 firm size (lnTA)

+ past leverage

PP & E / TA +
2 Div. paid (last three years/ TA
(capital intensity)

3 R & D (last three years)/ TA - sales of common stock(last three

years)/ TA

4 NI (last three years)/ TA

- repurchase of common stock(last
three years)/ TA

change in non-debt current

5 MEQ/BEQ ? liabilities(last three years)/ TA

6 Tax loss carry forward /TA - DUMMY 2 = 1 if D/TA(three years

ago) is > 50%

7 DUMMY 1 = 1 if D/TA is 0
Relationship to
debt ratio(+ or -)