2003), “Are observed capital structures determined by equity market timing?” Unpublished working paper
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@MISC{Hovakimian_2003),“are,
author = {Armen Hovakimian},
title = {2003), “Are observed capital structures determined by equity market timing?” Unpublished working paper},
year = {}
}
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Abstract
I would like to thank seminar participants at Baruch College and SUNY Binghamton for helpful comments. Are Observed Capital Structures Determined by Equity Market Timing? Contrary to Baker and Wurgler (2002), we find that the importance of historical average market-to-book in leverage regressions is not due to past equity market timing. We find that though equity transactions may be timed to equity market conditions, they do not have significant long-lasting effects on capital structure. Debt transactions exhibit timing patterns that are unlikely to induce a negative relation between market-to-book and leverage. We also find that historical average market-to-book has a significant effect on current financing and investment decisions, implying that it contains information about Traditional theories of corporate financing explain firms ’ financing choices as either the result of the fundamental trade-offs between various costs and benefits of debt and equity
