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 |
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Pages (from-to) | 175-197 |
Journal | Journal of Financial Intermediation |
Volume | 17 |
DOIs | |
Publication status | Published - 2008 |