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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

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.

Suggested Citation

  • Chen, Dar-Hsin & Chen, Chun-Da & Chen, Jianguo & Huang, Yu-Fang, 2013. "Panel data analyses of the pecking order theory and the market timing theory of capital structure in Taiwan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 1-13.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:1-13
    DOI: 10.1016/j.iref.2012.09.011
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    References listed on IDEAS

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    3. ShiXue He & Marcel Ausloos, 2017. "Impact of the Global Crisis on SME Internal vs. External Financing in China," Papers 1707.06635, arXiv.org.
    4. Sakshi Khanna & Amit Srivastava & Yajulu Medury, 2015. "The Effect of Macroeconomic Variables on the Capital Structure Decisions of Indian Firms: A Vector Error Correction Model/Vector Autoregressive Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 968-978.
    5. Maria Angelina Valadares Silva & António Melo Cerqueira & Elísio Brandão, 2017. "The Determinants of Capital Structure: Evidence from Non-financial Listed German Companies," FEP Working Papers 588, Universidade do Porto, Faculdade de Economia do Porto.
    6. 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.
    7. Růčková Petra & Heryán Tomáš, 2015. "The Capital Structure Management in Companies of Selected Business Branches of Building in Conditions of the Czech Republic," Prague Economic Papers, University of Economics, Prague, vol. 2015(6), pages 699-714.
    8. 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.
    9. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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