Does financing behavior of Tunisian firms follow the predictions of the market timing theory of capital structure?

In this paper, we show how capital structure decisions made by non-financial firms listed in the Tunis Stock Exchange are affected by the predictions of the so-called market timing theory. Using a set of some relevant variables which reflect the market-timing signals, the firm fundamentals, and the performance of local stock market, we mainly find that leverage ratio of Tunisian firms is short-term driven by their current market valuations. In the long run, the market timing effects are not present at all. Rather, Tunisian firms seem to behave according to the tradeoff theory of capital structure by attempting to adjust their leverage levels towards a target ratio.