Market timing and the debt-equity choice

@inproceedings{Elliott2008MarketTA,
  title={Market timing and the debt-equity choice},
  author={W. Elliott and Johanna Ko{\"e}ter-Kant and Richard S. Warr},
  year={2008}
}
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… CONTINUE READING
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