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Capital Structure Timing In Markets With Different Characteristics

Author

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  • Yoti Lee
  • Sheng-Chu Su
  • Wen-Cheng Lin

Abstract

Considerable empirical evidence suggests that firm’s time equity issues to market movements and that this behavior impacts capital structures. Based on a survey of investigations of this phenomenon, this study observes capital structures in different financial markets and identifies different situations related to the effect of timing on leverage. This study also explains optimal leverage with a simplified dynamic adjusted model. Firms facing financial constraints in debt financing may increase equity issues resulting in considerable leverage variance. On the other hand, firms with fewer financial constraints can time the market when issuing equity. This study takes regional samples from the United Kingdom and Japan, to summarize circumstances involving partial financial constraints and no financial constraints. The market timing effects tests in the United Kingdom are insignificant but the results for Japan are significant. This phenomenon improves understanding of the market timing model under different circumstances.

Suggested Citation

  • Yoti Lee & Sheng-Chu Su & Wen-Cheng Lin, 2012. "Capital Structure Timing In Markets With Different Characteristics," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 53-66.
    • Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:3:p:53-66
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    Citations

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    Cited by:

    1. Arosa, Clara Maria Verduch & Richie, Nivine & Schuhmann, Peter W., 2014. "The impact of culture on market timing in capital structure choices," Research in International Business and Finance, Elsevier, vol. 31(C), pages 178-192.
    2. Arosa, Clara Maria Verduch & Richie, Nivine & Schuhmann, Peter W., 2015. "The impact of culture on market timing in capital structure choices," Research in International Business and Finance, Elsevier, vol. 35(C), pages 180-196.

    More about this item

    Keywords

    Market Timing; Capital Structure.;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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