Abstract

http://ssrn.com/abstract=1370403
 
 

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Corporate Financing Decisions and Managerial Market Timing


Alexander W. Butler


Rice University - Jesse H. Jones Graduate School of Business

Jess Cornaggia


Georgetown University

Gustavo Grullon


Rice University - Jesse H. Jones Graduate School of Business

James Weston


Rice University - Jesse H. Jones Graduate School of Business

March 27, 2009


Abstract:     
This paper presents empirical evidence on the importance of market timing relative to an investment-based explanation of corporate financing decisions. Market timing and investment-based theories both predict underperformance following an increase in net financing, but only market timing theories predict that the composition of firms' financing (equity compared to debt) should also forecast returns. In regressions of future excess returns on both the amount and composition of net financing, we find that the level of net financing is important in explaining subsequent underperformance, but the composition is not. Our results are consistent with changes in investment policy affecting expected returns and inconsistent with successful market timing.

Number of Pages in PDF File: 36

Keywords: Market Timing, Financing Decisions, Investment Policy

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Date posted: March 30, 2009  

Suggested Citation

Butler, Alexander W. and Cornaggia, Jess and Grullon, Gustavo and Weston, James, Corporate Financing Decisions and Managerial Market Timing (March 27, 2009). Available at SSRN: http://ssrn.com/abstract=1370403 or http://dx.doi.org/10.2139/ssrn.1370403

Contact Information

Alexander W. Butler
Rice University - Jesse H. Jones Graduate School of Business ( email )
MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)
HOME PAGE: http://www.owlnet.rice.edu/~awbutler/
Jess Cornaggia
Georgetown University ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jesscornaggia.com
Gustavo Grullon (Contact Author)
Rice University - Jesse H. Jones Graduate School of Business ( email )
P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)
HOME PAGE: http://www.ruf.rice.edu/~grullon/
James Peter Weston
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)
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