Does Debt Market Timing Increase Firm Value?

Abstract

Survey evidence indicates that firm managers try to time debt markets when choosing the maturity of new debt issues, but we do not know whether these strategies increase firm value. I examine differences in value across non-timers and timers, where timers are defined as firms that follow either a naive strategy of choosing long-term debt when the term premium is low or a strategy from Baker, Greenwood, and Wurgler (2003) based on the predictability of future excess bond returns. After controlling for various determinants of firm value, I find no differences in value across timers and non-timers. I also find that the timing strategies do not increase firm value and do not affect announcement effects of long-term debt offerings. The results suggest that corporate debt markets are efficient and well integrated with equity markets.