Market Timing and Capital Structure
TL;DR: In this article, the authors show that current capital structure is strongly related to past market values and that the resulting effects on capital structure are very persistent, and suggest the theory that capital structure was the cumulative outcome of past attempts to time the equity market.
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Abstract: It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to past market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.
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