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Market Timing and Capital Structure

Author

Listed:
  • Jeffrey A. Wurgler

    () (Department of Finance)

  • Malcolm P. Baker

    () (ard University, Harvard Business School, Finance Unit)

Abstract

It is well known that firms tend to raise equity when their market values are high relative to book and past market values. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to past market valuations. The results are difficult to explain within traditional theories of capital structure and suggest that capital structure is the cumulative outcome of past attempts to time the equity market.

Suggested Citation

  • Jeffrey A. Wurgler & Malcolm P. Baker, 2001. "Market Timing and Capital Structure," Yale School of Management Working Papers ysm181, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:ysm181
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    Keywords

    Capital Structure; Market Timing;

    JEL classification:

    • 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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