Abstract
This article examines the occurrence of equity market timing through its effects on the capital structure of Brazilian companies that went public between 1997 and 2007. The results show the existence of equity market timing in the Brazilian stock market but its effects are not persistent in the long-run on the capital structure.
Highlights
The theoretical framework and the empirical tests associated to the theory of the static trade-off and pecking order (Myers, 1984; Myers & Majluf, 1984) have revealed ambiguous and insufficient theoretical predictions and empirical results as to explain how companies determine their capital structure
This study tested the theory of equity market timing for the Brazilian capital market, by conducting econometric procedures for an initial sample of 121 companies that conducted initial public offering between 1997 and 2007
The results found evidence of the existence of the theory for the capital market in Brazil
Summary
The theoretical framework and the empirical tests associated to the theory of the static trade-off and pecking order (Myers, 1984; Myers & Majluf, 1984) have revealed ambiguous and insufficient theoretical predictions and empirical results as to explain how companies determine their capital structure. There are a number of empirical studies that have documented alternative explanations for part of the decisions about the capital structure of companies One of these currents defends the occurrence of equity market timing by managers who are able to identify windows of opportunities when the equity is less costly due to mispricing. This proposition is not new, as a number of empirical studies have indirectly suggested its existence when they indicate that decisions to issue debt and equity are affected by past stock performance, interest rate costs and time-varying costs of adverse selection (Guney & Iqbal-Hussain, 2010). The assumptions of the equity market timing theory assume that firms tend to issue equity when investors are thrilled with the expectations of future earnings
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