Abstract
This paper investigates the relevance of market timing considerations on the debt-equity choice using a panelof tunisian and french listed firms. Consistent with the market timing theory, we find that firms tend to issueequity when their market valuations are relatively higher than their book values and after market performanceimprovement. As a consequence, these firms become underlevraged in the short-term and this impact of equitymarket timing on capital structure persists beyond eight years.
Highlights
A central question in corporate finance literature relates to the choice between debt and equity
The main goal of this paper is to investigate the persistence of the equity market timing attempts on capital structures of Tunisian and French firms
We examine the impact of equity issues on capital structure
Summary
A central question in corporate finance literature relates to the choice between debt and equity. The debate on capital structure choice has been fueled by the publication of the article of Modigliani and Miller (1958) These pioneers of finance beg the question of the pertinence of capital structure. The second major theory of capital structure is the pecking order theory described by Myers and Majluf (1984). They discuss the impact of asymmetric information in case investors are less informed about the value of the firm than insiders. To overcome this underpricing problem, firm should adopt a financing hierarchy starting by internal funds, debt, and equity as a last resort
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