Capital and Market Timing: International Evidence

Abstract

A well-established view that exists is that firms in a developed financial market take advantage of market valuations when making financial decisions. Whether firms in developing financial markets follow a similar behavior is not clear. Therefore, this research extends the prior literature by investigating whether managers in 26 developing and 23 developed economies time the market when issuing new equity. Our sample includes 12,181 publicly listed firms comprising 121,622 firm-year observations for the period 2007 to 2015. We report support for the market timing theory using pooled sample. However, our country analysis results show that the past market timing decisions do not appear to have a persistent and significant impact on firms’ financing decisions in the majority of countries.

Keywords: Capital structure, Market timing theory, Weighted average market-to-book, Book Leverage, Market Leverage, Net Equity Issues