The persistent effect of equity market timing on capital structure during right issue

Wihandaru Sotya Pamungkas (), Edi Supriyono () and Meika Kurnia Puji Rahayu ()

International Journal of Applied Economics, Finance and Accounting, 2023, vol. 15, issue 2, 53-60

Abstract: This research aims to find empirical evidence of the persistent effects of market timing equity on capital structure (CS) in Indonesia as measured by book leverage (BL) and market leverage (ML) due to inconsistent results of previous studies, both inside and outside Indonesia. The data was collected from companies that published the right issue (RI) from 2000 to 2019 and listed on Indonesia Stock Exchange. The companies which were used as sample, they had leverage higher than 1. The hypothesis was examined using two types of regression analysis: ordinary least squares regression to examine cross-section and Fama-McBeth regression for testing the panel data. The results of this research uncovered the persistent effect of equity market timing on the capital structure using BL and ML at RI+1, RI+2, RI+3, RI+4, RI+5, and in total, from RI+1 to RI+5. Moreover,a two-pair sample t-test was used to analyze the issuance of new shares or new debt. The results revealed that when RI+1 used ML and RI+3 used BL and ML, the company issued new shares (NEI) in large numbers, so debt issues (NDI) decreased. Further, this research is beneficial for companies to determine the right time during a rights issue to obtain a high share price so that the cost of share capital remains low.

Keywords: Book leverage; Capital structure; Market leverage; Persistent market timing equity; Right issue. (search for similar items in EconPapers)
Date: 2023
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