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

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  • Tijs de Bie
  • Leo de Haan

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.

Suggested Citation

  • Tijs de Bie & Leo de Haan, 2004. "Does market timing drive capital structures? A panel data study for Dutch firms," DNB Working Papers 016, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:016
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    Cited by:

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    3. Islam, Silvia Z. & Khandaker, Sarod, 2015. "Firm leverage decisions: Does industry matter?," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 94-107.
    4. Francesco Macheda, 2018. "The illusion of patient capital: evidence from pension investment policy in the Netherlands," Working Papers 0029, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    5. Allard Bruinshoofd & Leo de Haan, 2005. "Financing the New Economy: Are ICT Firms Really That Different?," DNB Working Papers 077, Netherlands Central Bank, Research Department.
    6. Mahajan, Arvind & Tartaroglu, Semih, 2008. "Equity market timing and capital structure: International evidence," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 754-766, May.
    7. Ramzi Drissi & Tarek Ghazouani & Assaad Ghazouani, 2013. "Financial Decision of Tunisian Firms in the Context of Market Timing Theory," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 923-931.
    8. Selim Mankaï & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," EconomiX Working Papers 2013-23, University of Paris Nanterre, EconomiX.
    9. Zeeshan Ahmed & Qasim Saleem & Abdul Qadir Bhatti & Bilal Ahmed, 2020. "Corporate Leverage Transmission under Information Asymmetry: Evidence from Non-financial Firms of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 176-184.
    10. Christos A. Grambovas & Begoña Giner & Demetris Christodoulou, 2006. "Earnings conservatism: panel data evidence from the European Union and the United States," Abacus, Accounting Foundation, University of Sydney, vol. 42(3‐4), pages 354-378, September.
    11. Lamia A. Obay, 2018. "The Capital Structure Choice: Evidence of Debt Maturity Substitution By GCC Firms," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(11), pages 1298-1312, November.

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    Keywords

    Market timing; Capital structure;

    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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