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Panel data analyses of the pecking order theory and the market timing theory of capital structure in Taiwan

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  • Chen, Dar-Hsin
  • Chen, Chun-Da
  • Chen, Jianguo
  • Huang, Yu-Fang
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    Abstract

    We exploit panel data of publicly-traded Taiwanese firms to test the pecking order theory the market timing theory over 1990–2005. On the one hand, the results indicate no support for pecking order behavior (consistent with Frank & Goyal, 2003), as net equity issues track the financing deficit much more closely than net debt issues do. The adverse selection also demonstrates that the pecking order theory is not supported by our empirical results. On the other hand, the evidence of the market timing theory is favorable for the Taiwan stock market especially for the period 1990 to 2001, suggesting that the results of this theory provide an explanation when our results do not support the pecking order hypothesis. However, the market timing theory does not apply in the period of 2002–2005. In other words, firms in Taiwan prefer issuing more debt rather than equity under low market performance.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056012001128
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 27 (2013)
    Issue (Month): C ()
    Pages: 1-13

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    Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:1-13

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Pecking order theory; Market timing theory; Panel data; Capital structure;

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    Cited by:
    1. Shu, Pei-Gi & Chiang, Sue-Jane, 2014. "Firm size, timing, and earnings management of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 177-194.
    2. Shen, Carl Hsin-han, 2014. "Pecking order, access to public debt market, and information asymmetry," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 291-306.
    3. Tsuchiya, Yoichi, 2014. "Purchasing and supply managers provide early clues on the direction of the US economy: An application of a new market-timing test," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 599-618.

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