Market Timing and Capital Structure
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
NYU Stern School of Business; National Bureau of Economic Research (NBER)
It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to past market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.
Number of Pages in PDF File: 48
Keywords: Capital Structure, Market Timing
JEL Classification: G32working papers series
Date posted: April 30, 2001 ; Last revised: January 13, 2009
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