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Market Timing and Capital Structure
Author(s) -
Baker Malcolm,
Wurgler Jeffrey
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00414
Subject(s) - equity (law) , equity capital markets , economics , capital structure , capital market line , factor market , financial economics , business , monetary economics , microeconomics , market depth , private equity , finance , stock market , geography , political science , debt , law , context (archaeology) , archaeology
It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.