Does Market Timing or Enhanced Pecking Order Determine Capital Structure?

2005 ◽  
Author(s):  
Peter Högfeldt ◽  
Andris Oborenko
Keyword(s):  
Capital Structure ◽  
Market Timing ◽  
Pecking Order

THAI FIRMS' HISTORIES AND THEIR CAPITAL STRUCTURE

2011 ◽  
Vol 06 (01) ◽  
pp. 1150004
Author(s):  
TAK YAN LAW ◽  
TERENCE TAI-LEUNG CHONG
Keyword(s):  
Capital Structure ◽  
Stock Price ◽  
Market Timing ◽  
Pecking Order ◽  
Timing Behavior ◽  
Price Performance ◽  
Growth Opportunity ◽  
Timing Effects ◽  
The Capital Structure

This paper examines the impacts of profitability, stock price performance and growth opportunity on the capital structure of firms in Thailand. The methodology of Kayhan and Titman (2007) is applied to model the dynamics of debt ratios. The results suggest that the leverage ratios of Thai firms do adjust towards their target levels. The deviations from the target due to the pecking-order and market timing effects are found to be significant. In contrast to Kayhan and Titman (2007), our results show that the market timing behavior does not persist.

scholarly journals A Critical Review of Capital Structure Theories

2012 ◽  
Vol 4 (11) ◽  
pp. 553-557 ◽  
Author(s):  
Syed Muhammad Javed ◽  
Agha Jahanzeb . ◽  
Saif-ur-Rehman .
Keyword(s):  
Capital Structure ◽  
Critical Review ◽  
Market Timing ◽  
Order Theory ◽  
Agency Cost ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off

The purpose of this paper is to scrutinize and appreciate the theories of capital structure starting from theory of Miller and Modigliani (1958) of capital structure, which is also known as irrelevance theory of capital structure and also including theory like pecking order theory, trade off theory, market timing theory and agency cost theory. In addition, authors have tried to explain the theories and their contradiction with each other in detail. This paper will be an addition to understand the theories of capital structure.

scholarly journals Firm characteristics and capital structure adjustment

2018 ◽  
Vol 15 (2) ◽  
pp. 129-144 ◽  
Author(s):  
Winston Pontoh ◽  
Novi Swandari Budiarso
Keyword(s):  
Capital Structure ◽  
Cash Flow ◽  
Market Timing ◽  
Order Theory ◽  
Free Cash Flow ◽  
Internal Conflict ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Public Firms

The adjustment for the firm capital structure is unclear from perspectives of trade-off theory, pecking order theory, life cycle theory, market timing theory, and free cash flow theory, since many research findings contradict each other. Adjustments for the capital structure are complex, since the conditions for each firm are different. The objective of this study is to provide empirical evidence of how firms adjust capital structure in relationship with maturity in context of trade-off, pecking order, free cash flow, and market timing theory. In terms of hypotheses testing, this study conducts logistic regression analysis with 138 Indonesian public firms as the sample in the observed period from 2010 to 2015. To distinguish the results, this study controls the sample by size and age based on the median. The study reports that preferences for the source of funds based on the cost of capital, internal conflict, and firm maturity indicate adjustments for the firm capital structure. Based on Indonesian firms, the form of capital structure in developing countries can refer to a single model or a combination of the trade-off model and pecking order model, as well as market timing.

scholarly journals Market Timing and Pecking Order Theory in Latin America

2021 ◽  
Vol 13 (2) ◽  
pp. 79-104
Author(s):  
Francisco Javier Vásquez Tejos ◽  
Hernan Pape Larre
Keyword(s):  
Capital Structure ◽  
Latin American ◽  
Market Timing ◽  
Order Theory ◽  
Annual Data ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Share Prices ◽  
Definitive Evidence ◽  
The Capital Structure

This article aims to determine if the capital structure of Latin American companies in the emerging markets of Brazil, Chile, Mexico, and Peru, are managed according to the market timing theory or the pecking order theory. The analysis was based on a non-probabilistic sample of 170 companies, with annual data, from an unbalanced panel, in the period 2010-2018. Regressions were applied with the fixed and random effects method. The results do not show significant evidence indicating that Latin American companies comply with the pecking order theory. Furthermore, there is also no definitive evidence that companies benefit from low share prices to issue capital or from debt issuance in the face of high stock market prices. There are signs that they follow a blend of several theories, which would indicate their characteristics in the capital structure of Latin American companies.

scholarly journals Efek Waktu Pasar dan Kebijakan Investasi terhadap Struktur Modal

2014 ◽  
Vol 5 (2) ◽  
Author(s):  
Winston Pontoh
Keyword(s):  
Capital Structure ◽  
Capital Market ◽  
Stock Exchange ◽  
Market Timing ◽  
External Condition ◽  
Investment Policy ◽  
External Financing ◽  
Pecking Order ◽  
Internal Financing ◽  
Using Data

The capital structure policy by an entity is still a question specially in the context of investment policy and if related to market timing. The question is still exist because the entity faced by two options of financing which are internal financing (capital) and external financing (debt). This study is using data from the samples of 241 entities listed in Indonesia Stock Exchange in period of 2009 till 2012 making the total of observed data are 964. Conducting multiple regression analysis, this study conclude that, the effect of pecking order, trade off and market timing are not absolute for all conditions of entities, because the entities will take decision for capital structure policy based on its conditions such as internally or externally. In this case, the external condition is referring to capital market.

scholarly journals ANALYSIS OF MARKET TIMING TOWARD LEVERAGE OF NON-FINANCIAL COMPANIES IN INDONESIA

2015 ◽  
Vol 30 (1) ◽  
pp. 42
Author(s):  
Vera Pipin Wulandari ◽  
Kusdhianto Setiawan
Keyword(s):  
Capital Structure ◽  
Sample Size ◽  
Cross Section ◽  
Stock Exchange ◽  
Moving Average ◽  
Market Timing ◽  
Cross Section Data ◽  
Pecking Order ◽  
Independent Variables ◽  
Section Data

ABSTRACTThis study aimed to examine the effect of market timing on leverage on non-financial compa-nies in Indonesia. Market timing was tested on the hot and cold market conditions. Hot and cold markets are determined by the monthly market to book ratio. A hot (cold) market occurs when the average market to book ratio of a particular month is above (below) the value of the moving average of the monthly market to book ratio. This study also aimed to test whether non-financial companies in Indonesia persistently applied leverage policies. This study used two research models. The first model was a panel data with a sample size of 77 non-financial companies listed on the Indonesian Stock Exchange from 2002-2013.The second model was a cross section data with a sample size of 157 non-financial companies that conducted their IPO in Indonesia from 2003-2013. The dependent variable in both the research models was leveraget (levt). The independent variables were markett and leveraget-1 (levt–1). The control variables were profitabi-lityt-1 (proft-1); and sizet-1. The results of this study indicated that market timing affected the lev-erage of non-financial companies listed on the Indonesian Stock Exchange. However, market timing did not affect the leverage of non-financial companies that had their IPO in Indonesia. The non-financial companies in Indonesia were not persistently applying a leverage policy. The capital structure of non-financial companies in Indonesia changed because of the influence of variable profitability and size (which supports the pecking order and trade off theory).Keywords: market timing theory, leverage, hot and cold market, market to book ratio

scholarly journals Capital Structure Theory: An Overview

2017 ◽  
Vol 6 (1) ◽  
pp. 133 ◽  
Author(s):  
D.K.Y Abeywardhana
Keyword(s):  
Capital Structure ◽  
Market Timing ◽  
Order Theory ◽  
Structure Theory ◽  
Cost Of Debt ◽  
Equity Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Capital Structure Theory

Capital structure is still a puzzle among finance scholars. Purpose of this study is to review various capital structure theories that have been proposed in the finance literature to provide clarification for the firms’ capital structure decision. Starting from the capital structure irrelevance theory of Modigliani and Miller (1958) this review examine the several theories that have been put forward to explain the capital structure.Three major theories emerged over the years following the assumption of the perfect capital market of capital structure irrelevance model. Trade off theory assumes that firms have one optimal debt ratio and firm trade off the benefit and cost of debt and equity financing. Pecking order theory (Myers, 1984, Myers and Majluf, 1984) assumes that firms follow a financing hierarchy whereby minimize the problem of information asymmetry. But neither of these two theories provide a complete description why some firms prefer debt and others prefer equity finance under different circumstances.Another theory of capital structure has introduced recently by, Baker and Wurgler (2002), market timing theory, which  explains the current capital structure as the cumulative outcome of past attempts to time the equity market. Market timing issuing behaviour has been well established empirically by others already, but Baker and Wurgler (2002) show that the influence of market timing on capital structure is regular and continuous. So the predictions of these theories sometimes acted in a contradictory manner and Myers (1984) 32 years old question “How do firms choose their capital structure?” still remains. 

Impact of the cost of capital on the financing decisions of Brazilian companies

2015 ◽  
Vol 11 (3) ◽  
pp. 285-307 ◽  
Author(s):  
Tatiana Albanez
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Market Timing ◽  
Shareholder Wealth ◽  
Equity Capital ◽  
Cost Of Equity ◽  
Pecking Order ◽  
Content Type ◽  
Financing Decisions ◽  
The Cost

Purpose – The purpose of this paper is to examine the market timing behavior of listed Brazilian companies to verify the effects of the cost of capital on their financing decisions, and hence on their capital structure. Design/methodology/approach – The relation between the cost of capital (debt and equity capital) and the leverage of firms in the period from 2000 to 2011 is analyzed by means of regression models with panel data. For this purpose, different proxies are used for the cost of equity and debt capital. Findings – The results provide strong evidence that Brazilian firms take advantage of windows of opportunity to obtain financing, and that when the cost of equity capital is high, firms appear to follow a pecking order, giving preference to debt financing. However, the decision is based on the cost of alternative sources of funding rather than just on the hierarchy established by the pecking order theory, due to the information asymmetry between market agents. Originality/value – Few studies of the Brazilian capital market have analyzed firms’ capital structure under the market timing approach, and none have addressed the same aspects analyzed here. Therefore, this paper will be useful to different users of accounting information by indicating the factors that influence the capital structure of Brazilian firms, allowing a better analysis of whether these firms act to maximize the generation of shareholder wealth.

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