 Do Firms Time the Equity Market in a Non-Linear Manner? Evidence from the UKThe International Journal of Business and Finance Research, 2014, vol. 8, issue 4, 63-74 Abstract: We provide an empirically motivated study to test the market timing theory of capital structure. The objective is to understand how managers in the United Kingdom finance their deficit. In line with the extant literature, we find that managers place greater reliance equity issues to finance deficit during periods of overvaluation and correspondingly increase debt issues when equities are undervalued. We further find that managers time the equity market in a surprisingly unique manner. Managers attempt to time issues in a non-linear manner whereby the increase in reliance on equity issues is only evident when the extent of overvaluation is not excessive. In addition, firms finance deficits with higher proportions of debt when equity prices are acutely suppressed. Our findings raise some important questions, which lead to serious implications on equity market-timing as a viable explanation for capital structure decisions. Furthermore, it poses serious implications questioning the debt-equity ratio preference of managers when resorting to external financing. Keywords: Equity Market Timing; Capital Structure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:8:y:2014:i:4:p:63-74 Access Statistics for this article The International Journal of Business and Finance Research is currently edited by Terrance Jalbert More articles in The International Journal of Business and Finance Research from The Institute for Business and Finance Research |
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