Market timing and the debt-equity choice

W.B. Elliot; J. Koeter-Kant; R.S. Warr

doi:10.1016/j.jfi.2007.05.002

Market timing and the debt-equity choice

W.B. Elliot, J. Koeter-Kant, R.S. Warr

Finance

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

We test the market timing theory of capital structure using an earnings-based valuation model that allows us to separate equity mispricing from growth options and time-varying adverse selection; thus avoiding the multiple interpretations of book-to-market ratio. We find that equity market mispricing plays a significant, if not dominant, role in the security choice decision. Our results are robust to the inclusion of proxies for time-varying growth options and alternate methods of measuring misvaluation. © 2007 Elsevier Inc. All rights reserved.

Original language	English
Pages (from-to)	175-197
Journal	Journal of Financial Intermediation
Volume	17
DOIs	https://doi.org/10.1016/j.jfi.2007.05.002
Publication status	Published - 2008

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title = "Market timing and the debt-equity choice",

abstract = "We test the market timing theory of capital structure using an earnings-based valuation model that allows us to separate equity mispricing from growth options and time-varying adverse selection; thus avoiding the multiple interpretations of book-to-market ratio. We find that equity market mispricing plays a significant, if not dominant, role in the security choice decision. Our results are robust to the inclusion of proxies for time-varying growth options and alternate methods of measuring misvaluation. {\textcopyright} 2007 Elsevier Inc. All rights reserved.",

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AB - We test the market timing theory of capital structure using an earnings-based valuation model that allows us to separate equity mispricing from growth options and time-varying adverse selection; thus avoiding the multiple interpretations of book-to-market ratio. We find that equity market mispricing plays a significant, if not dominant, role in the security choice decision. Our results are robust to the inclusion of proxies for time-varying growth options and alternate methods of measuring misvaluation. © 2007 Elsevier Inc. All rights reserved.

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DO - 10.1016/j.jfi.2007.05.002

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JO - Journal of Financial Intermediation

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