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Market timing of corporate debt issuance: prediction or reaction?

Author

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  • Bilei Zhou
  • Jie Michael Guo
  • Xiaohong Chen
  • Tian Yang

Abstract

This article examines whether managers can successfully time the debt market when firms issue debt. The question arises from the debate about whether the empirical evidence that corporate debt issues are correlated to the debt market condition factors reveals the underlying market timing ability. The existence of a causal link between market condition variations and debt issuance is examined by distinguishing the predictions of future market variation from the reactions to past information. It is found that, in the sense of predicting the future market fluctuations, firms are generally unsuccessful. In contrast, their debt issue decisions are heavily driven by the reactions to prior information.

Suggested Citation

  • Bilei Zhou & Jie Michael Guo & Xiaohong Chen & Tian Yang, 2012. "Market timing of corporate debt issuance: prediction or reaction?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(21), pages 1753-1769, November.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:21:p:1753-1769
    DOI: 10.1080/09603107.2012.669460
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    References listed on IDEAS

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