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Market timing and the debt-equity choice

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Author Info

  • Elliott, William B.
  • Koëter-Kant, Johanna
  • Warr, Richard S.

Abstract

We test the market timing theory of capital structure using an earnings-based valuation model that allows us to separate equity mispricing from growth options and time-varying adverse selection; thus avoiding the multiple interpretations of book-to-market ratio. We find that equity market mispricing plays a significant, if not dominant, role in the security choice decision. Our results are robust to the inclusion of proxies for time-varying growth options and alternate methods of measuring misvaluation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 17 (2008)
Issue (Month): 2 (April)
Pages: 175-197

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Handle: RePEc:eee:jfinin:v:17:y:2008:i:2:p:175-197

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Web page: http://www.elsevier.com/locate/inca/622875

Related research

Keywords: Capital structure Market timing Security choice Mispricing Earnings-based valuation Residual income model;

References

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Citations

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Cited by:
  1. Elliott, William B. & Prevost, Andrew K. & Rao, Ramesh P., 2009. "The announcement impact of seasoned equity offerings on bondholder wealth," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1472-1480, August.
  2. Halil D. Kaya, 2011. "Syndicated bank loans and capital structure," Managerial Finance, Emerald Group Publishing, vol. 37(8), pages 697-714, August.
  3. Bonaimé, Alice Adams & Öztekin, Özde & Warr, Richard S., 2014. "Capital structure, equity mispricing, and stock repurchases," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 182-200.
  4. Lo Duca, Marco & Nicoletti, Giulio & Vidal Martinez, Ariadna, 2014. "Global corporate bond issuance: what role for US quantitative easing?," Working Paper Series 1649, European Central Bank.
  5. Sibel ÇELÝK & Yasemin Deniz AKARIM, 2013. "Does Market Timing Drive Capital Structure? Empirical Evidence from an Emerging Market," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 140-152.

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