Debt-equity Choices and Market Timing

• Main Authors: HUANG, HUEI-WEN, 黃慧汶
• Other Authors: CHEN, CHIA-WEI
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/emdbfe

碩士 === 東海大學 === 財務金融學系 === 106 === This study mainly discusses the applicability of market timing effect on debt-equity choices. As most of the previous studies discussed financial behavior from the aspects of optimal capital structure, tradeoff theory, pecking order theory, there are some scholars have recently put forward different point of view on the financial behavior of the companies. And they found that companies tend to adjust the different sources of funds according to the condition of the market. When the companies are overvalued, managers may take the advantage of the excessive enthusiasm of investors to issue more stocks; conversely, when the companies are undervalued, managers may tend to use debt financing. Accordingly, this study, with observation of listed firms in Taiwan during the period from 2006 to 2015, applies the empirical approach of Craig and Tan (2016), to examine whether the market timing hypothesis is indeed supported. We find that by measuring FE, BHAR, managers actually do market timing consistent with market timing hypothesis. Firms tend to issue new securities when they are overvalued. However, issuers suffer lower returns when mispricing was corrected in subsequent periods. In short, the behavior of market timing could not be rejected with the sample in Taiwan, although empirical results may lose the significance as different measures of market timing are employed.