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)
Journal of Finance, Vol. 57, No. 1, pp. 1-32, February 2002
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.
Keywords: capital structure, market timing, ipo, seo
JEL Classification: G32Accepted Paper Series
Date posted: August 20, 2001 ; Last revised: January 13, 2009
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