Tests of the static trade-off theory that posits that firms movetowards the optimum capital structure necessitate a jointhypothesis test - whether firms adjust toward target leverage, andwhether the proxy used for target leverage is the true targetleverage. Prior studies use the time-series mean...

This paper applies some recent advances in corporate capital structure theory to the determination of optimal capital in banking. The effects of corporate and personal taxes, government regulation, the technology of producing deposit services and the costs of bankruptcy and agency problems are...