Market Timing and Capital Structure
48 Pages Posted: 30 Apr 2001 Last revised: 13 Jan 2009
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
JEL Classification: G32
Suggested Citation: Suggested Citation