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Does market timing drive capital structures? A panel data study for Dutch firms

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Author Info
Tijs de Bie
Leo de Haan

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Abstract

This empirical study revisits the determinants of firms' capital structures. The main focus thereby is onthe 'market timing theory', according to which the current level of the capital structure is the cumulative outcome of past attempts to `time the market', i.e. issuing shares when equity is overvalued and repurchasing shares in case of undervaluation. Since the positive evidence for this theory found by Baker and Wurgler (2002) for the US, this strand of empirical literature is growing. This paper presents evidence for a sample of 135 Dutch listed non-financial firms over the period 1983-1997 as well as for a sub-sample of 45 Dutch firms that did an initial public offering (IPO). The research methodology follows Kayhan and Titman (2004), who model capital structure as a mix of market timing, pecking order and capital structure targeting behaviour. The findings for the Dutch sample do not find strong and persistent effects of market timing on capital structures.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 016.

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Date of creation: Nov 2004
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Handle: RePEc:dnb:dnbwpp:016

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Find related papers by JEL classification:
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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    Other versions:
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