Corporate finance legal/instit. Environment question

If leverage equals assets/equity, then why do we expect countries that have weaker legal systems to have higher financial leverage?

It sounds correct, but I’m having trouble wrapping this in my head considering the formula for leverage.

Higher leverage means more debt (relative to equity) used to finance assets.

This will be the case in countries which provide relatively little legal protection to equity investors, i.e. have a weaker legal system. So, a weaker legal system should lead to more reliance on debt financing and higher financial leverage.

Thanks Wojtek. I