External Financing and Cross-Sectional Returns: A Global Analysis

50 Pages Posted: 24 Aug 2010

See all articles by Akiko Watanabe

Akiko Watanabe

University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

Date Written: July 30, 2010

Abstract

Net external financing predicts cross-sectional returns in a large sample of firms drawn from 38 non-U.S. countries. In contrast, the proportion of net equity issues in total net financing, often used to measure the extent of managerial market timing, does not. With a strong cross-firm association between net external financing and investment growth rates, this suggests that firms’ real investment behavior rather than their strategic switching between equity and debt financings contains information relevant to future returns. Despite its popularity in the literature, the behavioral market-timing effect is absent globally even among countries with weak investor protection, limited corporate disclosure, and less developed financial markets.

Keywords: External Financing, Market Timing, Investment, International Equity Markets

JEL Classification: G15

Suggested Citation

Watanabe, Akiko, External Financing and Cross-Sectional Returns: A Global Analysis (July 30, 2010). Available at SSRN: https://ssrn.com/abstract=1664768 or http://dx.doi.org/10.2139/ssrn.1664768

Akiko Watanabe (Contact Author)

University of Alberta - School of Business ( email )

3-30A Business Building
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-0385 (Phone)
780-492-3325 (Fax)

HOME PAGE: http://www.bus.ualberta.ca/awatanabe

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://www.bus.ualberta.ca/awatanabe

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